U.S. SECURITIES AND EXCHANGE
COMMISSION






WASHINGTON,
D.C. 20549













FORM
10-K






Mark
One






[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES






EXCHANGE
ACT OF 1934






For the
fiscal year ended December 31, 2009






[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES






EXCHANGE
ACT OF 1934




For
      the transition period from ______ to _______
              
              COMMISSION
      FILE NO. 333-141060
              
              AMERICAN
      EXPLORATION CORPORATION
              ________________________
              (Name
      of small business issuer in its charter)
              
              NEVADA                                                                    90-0335743
              ______                                                                        __________
              (State
      or other jurisdiction of
      incorporation                            (I.R.S.
      Employer
              or
      organization)                                                         Identification
      No.)





407 2nd
STREET SW


CALGARY,
ALBERTA


CANADA
T2P 2Y3


(Address
of principal executive offices)





(403)
      233-8484
              ______________
              (Issuer's
      telephone number)
              
              Securities
      registered pursuant to Section    Name of each
      exchange on which
              12(b)
      of the
      Act:                         registered:
              NONE
              ____

















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


COMMON STOCK,
$0.001


(Title of
Class)




Check
whether the issuer is not required to file reports pursuant to Section
13


or 15(d)
of the Exchange Act. [ ]






Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in
Rule 403 of the Securities Act.  [   ]
Yes   [ X ] No






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






Indicate
by check mark whether the registrant has (i) 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 (ii) has been subject to such filing requirements for the past 90 days. Yes
[X] No [   ]




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  [   ] Yes   [
X]  No




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






Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated file, 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.






Large
accelerated filed
[   ]                                                                                  Accelerated
filer [   ]






Non-accelerated
filer
[   ]                                                                                     Smaller
reporting company [X]






Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes [   ] No [X]






State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of the last
business of the registrant’s most recently completed second fiscal quarter: June
30, 2009 $35,270,250.





















ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS






N/A






Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the
distribution of securities under a plan confirmed by a court. Yes[ ] No[
]






APPLICABLE
ONLY TO CORPORATE REGISTRANTS






State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.






Class
Outstanding as of April 5, 2010 Common Stock, $0.001 60,273,333*




*Increased
for forward stock split of 1.5 shares for each one share issued and outstanding
effected on the market as of Monday, April 13, 2009.






DOCUMENTS
INCORPORATED BY REFERENCE






If the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: (i) any annual report to security holders; (ii) any
proxy or information statement; and (iii) any prospectus filed pursuant to Rule
424(b) or (c) of the Securities Act of 1933 (the "Securities Act"). The listed
documents should be clearly described for identification purposes (e.g. annual
reports to security holders for fiscal year ended December 24,
1990).






N/A






Transitional
Small Business Disclosure Format (Check one): Yes [ ] No [X]


























































AMERICAN
EXPLORATION CORPORATION






FORM
10-K






INDEX




Page
              
              Item      1.
      Business
              
              Item      1A.
      Risk Factors
              
              Item      1B.
      Unresolved Staff Comments
              
              Item      2.
      Properties
              
              Item      3.
      Legal Proceedings
              
              Item      4.
      Removed and Reserved
              
              Item      5.
      Market for Registrant's Common Equity,  Related
              Stockholder
      Matters and Issuer Purchases of Equity Securities
              
              Item      6.
      Selected Financial Data
              
              Item      7.
      Management's Discussion and Analysis of Financial Condition
              and
      Results of Operation
              
              Item      7A.
      Quantity and Qualitative Disclosure About Market Risks
              
              Item      8.
      Financial Statements and Supplemental Data
              
              Item      9.
      Changes in and Disagreements With Accountants on Accounting
              and
      Financial Disclosure
              
              Item      9A.
      Controls and Procedures
              
              Item      9B.
      Other Information
              
              Item      10.
      Directors, Executive Officers and Corporate Governance
              
              Item      11.
      Executive Compensation
              
              Item      12.
      Security Ownership of Certain Beneficial Owners and
              Management
      and Related Stockholder Matters
              
              Item      13.
      Certain Relationships and Related Transactions and
              Director
      Independence
              
              Item      14.
      Principal Accountant Fees and Services
              
              Item      15.
      Exhibits and Financial Statement Schedules














Statements made in this Form 10-K that are
not historical or current facts are "forward-looking statements" made pursuant
to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the
"Act") and Section 21E of the Securities Exchange Act of 1934. These statements
often can be identified by the use of terms such as "may," "will," "expect,"
"believe," "anticipate," "estimate," "approximate" or "continue," or the
negative thereof. We intend that such forward-looking statements be subject to
the safe harbors for such statements. We wish to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond our control
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
We disclaim any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statement or to
reflect the occurrence of anticipated or unanticipated events.






AVAILABLE
INFORMATION






American
Exploration Corporation files annual, quarterly, current reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "Commission"). You may read and copy documents referred to in this Annual
Report on Form 10-K that have been filed with the Commission at the Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov.






EXPLANATORY
NOTE




This
Annual Report on Form 10-K for the year ended December 31, 2009 of American
Exploration Corporation includes the re-audited financial statements for the
year ended December 31, 2008. The previously issued financial statements for the
fiscal year ending December 31, 2008 were audited by Moore and Associates
Chartered, whose registration with the Public Company Accounting Oversight Board
was revoked in August of 2009.























PART
I






ITEM 1. BUSINESS






BUSINESS
DEVELOPMENT




American
Exploration Corporation was incorporated under the laws of the State of Nevada
on May 11, 2006 under the name of Minhas Energy Consultants, Inc. Previously, we
were engaged in the business of providing professional engineering consulting
services to the oil and gas industry, including clients such as petroleum and
natural gas companies, oil service companies, utilities and manufacturing
companies with petroleum and/or natural gas interests and government agencies.
After the effective date of March 14, 2007 of our registration statement filed
with the Securities and Exchange Commission, we commenced trading on the
Over-the-Counter Bulletin Board.





On August
6, 2008, with the approval of our Board of Directors, we merged with our
subsidiary, American Exploration Corporation, and amended our Articles of
Incorporation to change our name to "American Exploration Corporation". We
currently are a natural resource exploration and production company currently
engaged in the exploration, acquisition and development of oil and gas
properties in the United States and within North America. Effective at the
opening for trading on August 19, 2008, our trading symbol for our shares that
trade on the Over-the-Counter Bulletin Board changed to "AEXP.OB".





Please
note that throughout this Annual Report, and unless otherwise noted, the words
"we," "our," "us," the "Company," or "American Exploration," refers to American
Exploration Corporation.




RECENT DEVELOPMENTS






April
2009 Forward Stock Split




On March
26, 2009, our Board of Directors authorized and approved a forward stock split
of 1.5 for one (1.5:1) of our total issued and outstanding shares of common
stock (the “Forward Stock Split”). The Forward Stock Split was effectuated based
on market conditions and upon a determination by our Board of Directors that the
2009 Forward Stock Split was in our best interests and those of the
shareholders. Certain factors were discussed among the members of the Board of
Directors concerning the need for the Forward Stock Split, including the
increased potential for financing. The intent of the Forward Stock Split was to
increase the marketability of our common stock.




The
Forward Stock Split was effectuated on April 13, 2009 upon filing the
appropriate documentation with FINRA. The Forward Stock Split increased our
total issued and outstanding shares of common stock from 36,575,000 to
54,862,500 shares of common stock. The common stock will continue to be $0.001
par value. Due to issuance of stock for the purchase of a mineral lease and
our private placements, the number of shares outstanding was 59,773,333 as of
December 31, 2009.















Amendment
to Articles of Incorporation




On March
26, 2009, our Board of Directors approved the filing with the Nevada Secretary
of State of an amendment to our Articles of Incorporation to increase our
authorized capital structure commensurate with the increase of our shares
pursuant to the Forward Stock Split. Therefore, as of the date of this Annual
Report, our authorized capital structure has been increased from 100,000,000
shares of common stock to 150,000,000 shares of common stock, par value of
$0.001.





CANCELLATION
OF SHARES





On March
21, 2009, our prior executive officers and founders agreed to return an
aggregate 83,100,000 shares of our common stock. The executive officers did not
receive any compensation directly or indirectly from us as a result of the
cancellation of the 83,100,000 shares of common stock. Thus, our total issued
and outstanding shares of common stock was reduced to 54,862,500 shares. See
"Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities."




TRANSFER
AGENT






Our
transfer agent is Routh Stock Transfer Inc., 6860 N Dallas Parkway, Suite 200,
Plano, Texas 75024.






CURRENT
BUSINESS OPERATIONS




We are an
exploration stage company engaging in the acquisition, exploration and
development of oil and gas properties in North America, primarily in the United
States. Our primary focus has been the acquisition of a 100% working interest
and a 75% net revenue interest in certain leases located in Mississippi owned by
Westrock Land Corp, a private Texas corporation ("Westrock"). We believe we
identified a prospect with an over-thickened Haynesville Shale gas reservoir
situated below the properties covered by these leases.





Merger
Agreement





Our Board
of Directors has authorized and approved the execution of a definitive merger
agreement and plan of merger (the “Merger Agreement”) dated March 22nd, 2010
(the “Execution Date”) with Mainland Resources, Inc., a Nevada corporation
(“Mainland Resources”). The Merger Agreement provides for a stock-for-stock
merger to be effected under the laws of the State of Nevada whereby it is
contemplated that our shareholders will receive one share of restricted common
stock of Mainland Resources for every four shares of our common stock held of
record. The specific share exchange ratio will be negotiated following the
completion of “fairness opinions” conducted by independent financial advisors
and technical due diligence by both Mainland and American. As of the date of
this Annual Report, there are 60,273,333 shares of our common stock issued and
outstanding with the result that 15,068,333 shares of common stock of Mainland
Resources will be issued to our shareholders upon consummation and completion of
the Merger Agreement. In further accordance with the terms and provisions of the
Merger Agreement, and based upon the closing market price of Mainland Resource’s
common stock at $1.25 per share as reported on the OTC Bulletin Board on March
18, 2010, the total share consideration to be issued to our shareholders will be
valued at $18,835,416. In the event the Merger Agreement is consummated and the
merger is completed: (i) Mainland Resources will be the surviving corporation;
(ii) Mainland Resources will be vested with all of our assets and property (as
discussed below); and (iii) our shareholders will hold approximately twenty
percent (20%) of the total issued and outstanding shares of common stock of
Mainland Resources.
















As of the
date of this Annual Report, the Merger Agreement is subject to various
conditions precedent including, but not limited to, the following: (i) approval
by our shareholders and the shareholders of Mainland Resources of the Merger
Agreement; (ii) completion of satisfactory due diligence by both us and Mainland
Resources within thirty (30) days of the Execution Date of the business and
affairs of the respective company to determine the general and economic
feasibility of the merger; (iii) the number of Mainland Resources’ shareholders
exercising dissenter rights available to them under Nevada law, which shall not
exceed 5% of the total issued and outstanding shares of Mainland Resources
common stock; (iv) receipt by us and Mainland Resources of a draft fairness
opinion (each a “Fairness Opinion”) of its own independent financial advisor to
the effect that as of the Execution Date, the merger is fair from a financial
point of view to the shareholders of each respective company (subject to the
assumptions, qualifications and limitations relating to such opinion); (v) the
acceptance and approval of the Fairness Opinion by our Board of Directors and
the board of directors of Mainland Resources, respectively; and (vi)
confirmation of the accuracy and material compliance of our representations,
warranties and covenants and those representations, warranties and covenants of
Mainland Resources. “See Item 1. Business – Risk Factors – Risk Factors Related
to the Merger Agreement.”





As of the
date of this Annual Report, we intend to file an S-4 registration statement with
the Securities and Exchange Commission and associated proxy material to present
the Merger Agreement to our shareholders for approval.






Westrock
Option Agreement




Effective
on November 3, 2008, our Board of Directors authorized the execution of an
option agreement (the “Option Agreement”) with Westrock. Westrock owns all
right, title and interest in and to approximately 5,000 net acres in oil and gas
leases located in Mississippi (collectively, the ”Leases”). We had an option to
acquire 100% of the working interest and 75% of the net revenue interest in the
Leases at $625 per net acre for a total purchase price of $3,125,000. The
contiguous acreage involves several landowners, with mineral lease expiry
ranging from June through September of 2011. Terms of the Option Agreement
required spudding a well on or before October 1, 2009. The effective date of the
conveyance of the revenue interest in the Leases to us was to be no later than
May 15, 2009 with a final payment of the remaining balance of
$2,018,750.




Effective
on January 8, 2009, we entered into an amendment to the Option Agreement (the
“Amended Option Agreement”) with Westrock. Pursuant to the Amended Option
Agreement, Westrock granted to us until February 2, 2009 to complete our due
diligence. Effective on March 18, 2009, we entered into a further amendment to
the Option Agreement (“the “Second Amended Option Agreement”) with Westrock.
Pursuant to the Second Amended Option Agreement: (i) Westrock granted to us
until May 15, 2009 to complete our due diligence; (ii) we paid to Westrock an
additional non-refundable amount of $325,000 as consideration for the extension;
and (iii) the effective date of the conveyance of the revenue interest in the
Leases to us would be no later than May 15, 2009.

















During
fiscal year ended December 31, 2009, two separate evaluations were undertaken to
review the land title status of the Leases. Both evaluations concluded that all
was satisfactory and title could be cleanly transferred to us from Westrock.
Therefore, effective on August 17, 2009, we entered into a further amendment to
the Option Agreement (the “Third Amended Option Agreement”) with Westrock.
Pursuant to the Third Amended Option Agreement: (i) we agreed to issue an
aggregate of 4,037,500 shares, valued at $2,664,750, of our restricted common
stock to Westrock as satisfaction for an aggregate amount of $2,108,750, which
remained due and owing from the aggregate purchase price of $3,125,000 (the
“Purchase Price”); and (ii) we agreed to drill and complete a minimum of at
least one well on the properties in the Haynesville geological zone no later
than December 31, 2010.




The
transaction with Westrock is deemed finalized. The 4,037,500 shares of
restricted common stock have been issued by us to Westrock and the transfer of
title to the Leases has been finalized.




Mainland
Resources Letter Agreement






Effective
on September 17, 2009, our Board of Directors authorized the execution of a
letter agreement (the “Letter Agreement”) with Mainland Resources to jointly
develop contiguous acreage known as the Buena Vista Area located in Mississippi
(the “Joint Development Project”). In accordance with the terms and provisions
of the Letter Agreement: (i) we agreed to commit approximately 5,000 net acres
and Mainland Resources has agreed to commit approximately 8,225 net acres to the
Joint Development Project; (ii) Mainland Resources shall be the operator
pursuant to the Joint Operating Agreement; (iii) Mainland Resources has agreed
to pay 80% of the initial well drilling and completion costs to earn a 51%
working interest in the well and the total Joint Operating Area; and (iv) we
have agreed to pay 20% of the initial well drilling and completion costs to earn
a 49% working interest in the well and the total Joint Operating Area. In
further accordance with the terms and provisions of the Joint Operating
Agreement, future costs, including drilling and completions, for oil and gas
activities of the net acreage in the Joint Operating Area will be split of a
51%/49% basis between Mainland Resources and us, respectively.






Mainland
Resources must have acquired the acreage committed to the Joint Operating Area
from an unrelated third party on or before October 15, 2009 or the Letter
Agreement would have terminated and would no longer be in force and
effect.






As of the
date of this Annual Report, Mainland Resources has acquired the acreage and is
deemed the Operator of the Joint Development Project, pending consummation of
the Merger Agreement.






Avere
Energy Letter of Intent






Effective
on January 15, 2010, our Board of Directors authorized the execution of a letter
of intent (the “Letter of Intent”) with Avere Energy Inc., a Canadian
corporation (“Avere Energy”), regarding the Mississippi project area as
described below. Effective on March 1, 2010, the Letter of Intent was amended
pertaining to the overall compensation arrangements as further described below
(the “Amended Letter of Intent”).

















Previously
effective September 17, 2009, our Board of Directors authorized the execution of
the Letter Agreement with Mainland Resources as discussed above to jointly
develop contiguous acreage located in Mississippi. In accordance with the terms
and provisions of the Letter Agreement: (i) we agreed to commit approximately
5,000 net acres and Mainland Resources agreed to commit approximately 8,225 net
acres to the project area; (ii) Mainland Resources would be the operator of the
Mississippi Project in accordance with a joint operating agreement (the
“Mainland-Guggenheim-American Joint Operating Agreement, which was signed on
October 12, 2009”); (iii) Mainland Resources agreed to pay 80% of the initial
well drilling and completion costs to earn a 51% working interest in the well
and the total pooled mineral leases; and (iv) we agreed to pay 20% of the
initial well drilling and completion costs to earn a 49% working interest in the
well and the total pooled mineral leases. In further accordance with the terms
and provisions of the Joint Operating Agreement, future costs, including
drilling and completions, for oil and gas activities will be split on a 51%/49%
basis between Mainland Resources and us. Guggenheim Energy Opportunities, LLC
subsequently entered the partnership, participating for 10% of Mainland
Resources’ working interest (8% overall) in the drilling and development of the
Mississippi project, to earn a 5.1% net interest.






In
accordance with the terms and provisions of the Amended Letter of Intent, Avere
Energy shall enter into a definitive farm-in agreement with us whereby Avere
shall agree to a farm-in on our interest in the Mississippi Project by paying
20% of the total well costs (which is 100% of our capital commitment) to permit
Avere Energy to earn a 20% net interest in the Mississippi Project, which is
40.81% of our working interest (the “Avere Energy Earned Interest’).
Simultaneously with execution of the Amended Letter of Intent, Avere Energy paid
to us a $75,000 non-refundable deposit, which may be used by us in our sole
discretion. At closing, Avere Energy shall make a final payment to us in the
amount of $1,925,000, subject to TSX Venture Exchange approval. On or before the
later of: (i) April 1, 2010; or (ii) the date which is two months prior to the
spud of the initial well in the Mississippi Project, Avere Energy shall provide
documentation to us demonstrating that an additional $2,000,000 raised for the
purpose of drilling the Mississippi Project will be released in accordance with
the definite farm-in agreement and the Mainland-Guggenheim-American Joint
Operating Agreement. On or before the later of: (i) May 1, 2010; or (ii) the
date which is one month prior to the spud of the initial well in the Mississippi
Project, the funds shall be forwarded to the account held by Mainland as
operator of the Mississippi Project. Any additional mineral leases acquired
within the Mississippi Project area will be offered to Avere Energy at a 20%
working interest once Avere Energy has acquired its Earned
Interest.






The
definitive farm-in agreement and closing of the transactions contemplated
thereunder were anticipated to close sometime during the second quarter of 2010,
which closing is subject to the following conditions: (i) execution of a
definitive farm-in agreement; (ii) completion of a financing by Avere Energy to
raise sufficient funds as described above for the farm-in; and (iii) receipt of
the approval of the shareholders of Avere Energy and of the TSX Ventures
Exchange to the farm-in.






DRILLING
ACTIVITY






As of the
date of this Annual Report, we have not commenced drilling on any of our
property.




GROSS
      WELLS                                                                NET
      WELLS
              
              
              Total Producing        Dry                                                   Total      Producing      Dry
              -0-               -0-                 -0-                                                     -0-            -0-                  
      -0-










10








PRODUCTION
INFORMATION






During
fiscal year ended December 31, 2009 and previous, we had no oil and gas
production.






GROSS
AND NET PRODUCTIVE GAS WELLS, DEVELOPED ACREAGE






PRODUCTIVE
WELLS AND DEVELOPED ACRES






As of the
date of this Annual Report, the tables below set forth our leasehold interest in
productive and shut-in gas wells, and in developed acres:




PROSPECT                                       GROSS
      (1)                                        NET
      (2)
              
              
              Haynesville                                            0                                                         0
              Buena
      Vista                                           0                                                         0
              Total                                                       0                                                         0




(1) A
gross well is a well in which a working interest is owned. The number of gross
wells is the total number of wells in which a working interest is
owned.






(2) A net
well is deemed to exist when the sum of fractional ownership working interest in
gross wells equals one. The number of net wells is the sum of the fractional
working interests owned in gross wells expressed as whole numbers and fractions
thereof.






DEVELOPED
ACREAGE TABLE (1)




PROSPECT                            GROSS
      (2)                                             NET
      (3)
              
              Haynesville                                  0                                                                0
              Buena
      Vista                                 0                                                                0
              Total                                            0                                                                0




(1)
Consists of acres spaced or assignable to productive wells.













(2) A
gross acre is an acre in which a working interest is owned. The number of gross
acres is the total number of acres in which a working interest is
owned.






(3) A net
acre is deemed to exist when the sum of fractional ownership working interests
in gross acres equals one. The number of net acres is the sum of the fractional
working interests owned in gross acres expressed as whole numbers and fractions
thereof.






HAYNESVILLE
SHALE AREA






Our oil
and gas property is located in the Gulf Coast Salt Basin trend, outside of the
core area initially exploited for the Haynesville Shale. Management believes
that over-thickened Haynesville Shale units can be isolated which are rich in
organic carbon, possess superior rock properties and are gas-charged. A deep
well drilled on the leases in 1981 confirmed the presence of highly
over-pressured natural gas within an exceptionally thick Haynesville shale
section. The well was drilled to a depth of 22,000 feet, reaching total depth
while still within the Haynesville shale. A poor understanding of shale gas 28
years ago combined with a casing problem in the wellbore, encouraged the
operator to plug and abandon the well. We have been able to secure a full suite
of data from that well/project area which included: all geophysical log data,
drill cuttings, seismic data, drilling reports, and related technical
information. This information was critical in determining the quality of the gas
within the reservoir, the propensity of the Haynesville Shale to produce gas on
the leases, as well as the gas in place per section.






Two
independent geophysical assessments of the property were completed. Seismic
lines crossing the property were reprocessed and a detailed interpretation was
made by a geophysicist with strong knowledge of the play. A well-defined
dome-shaped structure was mapped and the leased acreage of which sits squarely
on the crest is ideally positioned for gas accumulation. A series of maps were
produced which image the reservoir surface as well as other potentially
prospective horizons on the property. These maps also assist in better
evaluating surrounding acreage.






Rock data
(cuttings samples) were viewed and sampled and sent to a rock evaluation lab for
testing. Parameters such as mineralogy and geochemistry were measured using
x-ray diffraction and rock evaluation pyrolysis. Thin section (microscope slide)
work was also conducted to better evaluate rock type, mineral characteristics
and porosity styles. This data was then provided to a leading petrophysical
group who has experience with the Haynesville Shale to complete a petrophysical
analysis (log analysis) of the entire prospective section, which included all of
the penetrated Haynesville Formation.






The
results of these extensive studies suggested that the leases of interest contain
significant hydrocarbons. In that the Haynesville is so thick in this locale,
vertical wells can be used to develop the property, reducing costs and many of
the drilling challenges associated with horizontal wellbores. Drilling costs
were estimated by an engineering company experienced in the project area, to a
depth of 22,000 ft. Based on observed production rates within the Haynesville
Formation of NW Louisiana and other Bossier Formation wells in East Texas, the
highly over-pressured Haynesville observed within the leases of interest may
produce at very high rates. Economic analyses conducted suggest that rates in
excess of 5mmcf/day will generally be economic, if gas prices are stable in
excess of $4/mcf. As of March 26, 2010, contract natural gas prices were
$3.86/mcf.










12








COMPETITION





We
operate in a highly competitive industry, competing with major oil and gas
companies, independent producers and institutional and individual investors,
which are actively seeking oil and gas properties throughout the world together
with the equipment, labor and materials required to operate properties. Most of
our competitors have financial resources, staffs and facilities substantially
greater than ours. The principal area of competition is encountered in the
financial ability to acquire good acreage positions and drill wells to explore
for oil and gas, then, if warranted, drill production wells and install
production equipment. Competition for the acquisition of oil and gas wells is
intense with many oil and gas properties and/or leases or concessions available
in a competitive bidding process in which we may lack technological information
or expertise available to other bidders. Therefore, we may not be successful in
acquiring and developing profitable properties in the face of this competition.
No assurance can be given that a sufficient number of suitable oil and gas wells
will be available for acquisition and development.





GOVERNMENT
REGULATION





The
production and sale of oil and gas are subject to various federal, state and
local governmental regulations, which may be changed from time to time in
response to economic or political conditions and can have a significant impact
upon overall operations. Matters subject to regulation include discharge permits
for drilling operations, drilling bonds, reports concerning operations, the
spacing of wells, unitization and pooling of properties, taxation, abandonment
and restoration and environmental protection. These laws and regulations are
under constant review for amendment or expansion. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. Changes in these
regulations could require us to expend significant resources to comply with new
laws or regulations or changes to current requirements and could have a material
adverse effect on our future business operations.





Regulation
of Oil and Natural Gas Production





Our
future oil and natural gas exploration, production and related operations will
be subject to extensive rules and regulations promulgated by federal, state and
local authorities and agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases our cost of doing business and affects
our profitability. Although we believe we are in substantial compliance with all
applicable laws and regulations, because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.





Many
states require permits for drilling operations, drilling bonds and reports
concerning operations and impose other requirements relating to the exploration
and production of oil and natural gas. Such states also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.











13








Federal
Regulation of Natural Gas





The
Federal Energy Regulatory Commission ("FERC") regulates interstate natural gas
transportation rates and service conditions, which affect the marketing of
natural gas produced by us, as well as the revenues received by us for sales of
such production. Since the mid-1980's, FERC has issued a series of orders that
have significantly altered the marketing and transportation of natural gas.
These orders mandated a fundamental restructuring of interstate pipeline sales
and transportation service, including the unbundling by interstate pipelines of
the sale, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. One of FERC's purposes in issuing
the orders was to increase competition within all phases of the natural gas
industry. Certain aspects of these orders may be modified as a result of various
appeals and related proceedings and it is difficult to predict the ultimate
impact of the orders on us and others. Generally, the orders eliminated or
substantially reduced the interstate pipelines' traditional role as wholesalers
of natural gas in favor of providing only storage and transportation service,
and have substantially increased competition and volatility in natural gas
markets.





The
price, which we may receive for the sale of oil, natural gas and natural gas
liquids, would be affected by the cost of transporting products to markets. FERC
has implemented regulations establishing an indexing system for transportation
rates for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. We are not able to predict with
certainty the effect, if any, of these regulations on any future operations.
However, the regulations may increase transportation costs or reduce wellhead
prices for oil and natural gas liquids.





Environmental
Matters





Our
operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission,
transportation  and discharge of materials into the environment, and
relating to safety and health. The recent trend in environmental legislation and
regulation generally is toward stricter standards, and this trend will likely
continue. These laws and regulations may (i) require the acquisition of a permit
or other authorization before construction or drilling commences and for certain
other activities; (ii) limit or prohibit construction, drilling and other
activities on certain lands lying within wilderness and other protected areas;
and (iii) impose substantial liabilities for pollution resulting from our
operations. The permits required for several of our operations are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce their regulations, and violations are
subject to fines or injunctions, or both. In the opinion of management, we are
in substantial compliance with current applicable environmental law and
regulations, and we have no material commitments for capital expenditures to
comply with existing environmental requirements. Nevertheless, changes in
existing environmental laws and regulations or in interpretations thereof could
have a significant impact on our business operations, as well as the oil and
natural gas industry in general.











14








The
Comprehensive Environmental, Response, Compensation, and Liability Act ("CERCLA
") and comparable state statutes impose strict, joint and several liability on
owners and operators of sites and on persons who disposed of or arranged for the
disposal of "hazardous substances" found at such sites. It is not uncommon for
the neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment. The Federal Resource Conservation and Recovery Act
("RCRA") and comparable state statutes govern the disposal of "solid waste" and
"hazardous waste" and authorize the imposition of substantial fines and
penalties for noncompliance. Although CERCLA currently excludes petroleum from
its definition of "hazardous substance," state laws affecting our operations
impose clean-up liability relating to petroleum and petroleum related products.
In addition, although RCRA classifies certain oil field wastes as
"non-hazardous," such exploration and production wastes could be reclassified as
hazardous wastes, thereby making such wastes subject to more stringent handling
and disposal requirements.





We intend
to acquire leasehold interests in properties that for many years have produced
oil and natural gas. Although the previous owners of these interests may have
used operating and disposal practices that were standard in the industry at the
time, hydrocarbons or other wastes may have been disposed of or released on or
under the properties. In addition, some of our properties may be operated in the
future by third parties over which we have no control. Notwithstanding our lack
of control over properties operated by others, the failure of the operator to
comply with applicable environmental regulations may, in certain circumstances,
adversely impact our business operations.





The
National Environmental Policy Act ("NEPA") is applicable to many of our planned
activities and operations. NEPA is a broad procedural statute intended to ensure
that federal agencies consider the environmental impact of their actions by
requiring such agencies to prepare environmental impact statements ("EIS") in
connection with all federal activities that significantly affect the
environment. Although NEPA is a procedural statute only applicable to the
federal government, a portion of our properties may be acreage located on
federal land. The Bureau of Land Management's issuance of drilling permits and
the Secretary of the Interior's approval of plans of operation and lease
agreements all constitute federal action within the scope of NEPA. Consequently,
unless the responsible agency determines that our drilling activities will not
materially impact the environment, the responsible agency will be required to
prepare an EIS in conjunction with the issuance of any permit or
approval.





The
Endangered Species Act ("ESA") seeks to ensure that activities do not jeopardize
endangered or threatened animals, fish and plant species, nor destroy or modify
the critical habitat of such species. Under ESA, exploration and production
operation, as well as actions by federal agencies, may not significantly impair
or jeopardize the species or their habitat. ESA provides for criminal penalties
for willful violations of the Act. Other statutes that provide protection to
animal and plant species and that may apply to our operations include, but are
not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery
Conservation and Management Act, the Migratory Bird Treaty Act and the National
Historic Preservation Act. Although we believe that our operations are in
substantial compliance with such statutes, any change in these statutes or any
reclassification of a species as endangered could subject us to significant
expense to modify our operations or could force us to discontinue certain
operations altogether.





Management
believes that we are in substantial compliance with current applicable
environmental laws and regulations.
















RESEARCH
AND DEVELOPMENT ACTIVITIES





No
research and development expenditures have been incurred, either on our account
or sponsored by customers, from the date of our inception.





EMPLOYEES





We do not
employ any persons on a full-time or on a part-time basis. We have two contract
employees, Steve Harding is our President/Chief Executive Officer and Brian
Manko is our Chief Financial Officer/Corporate Secretary. These individuals are
primarily responsible for all of our day-to-day operations. Other services are
provided by outsourcing and consultant and special purpose
contracts.




ITEM 1A. RISK FACTORS






An
investment in our common stock involves a number of very significant risks. You
should carefully consider the following risks and uncertainties in addition to
other information in evaluating us and our business before purchasing shares of
our common stock. Our business, operating results and financial condition could
be seriously harmed due to any of the following risks. The risks described below
are all of the material risks that we are currently aware of that we are facing.
Additional risks not presently known to us may also impair our business
operations. You could lose all or part of your investment due to any of these
risks.






RISKS
RELATED TO OUR BUSINESS






WE
WILL NEED TO RAISE ADDITIONAL FINANCING TO COMPLETE FURTHER EXPLORATION AND
PRODUCTION ACTIVITIES.






In the
event the Merger Agreement is not consummated, we will require significant
additional financing in order to commence and continue our developmental
activities and our production activities and our assessment of our acquired
lease and the commercial viability of certain of our oil and gas properties.
Furthermore, if the cost of our planned exploration, development and production
programs are greater than anticipated, we may have to seek additional funds
through public or private share offerings or arrangements with corporate
partners. There can be no assurance that we will be successful in our efforts to
raise these required funds, or on terms satisfactory to us. In the event the
Merger Agreement is not consummated, the continued exploration and development
and production of our oil and gas properties and the development of our business
will depend upon our ability to establish the commercial viability of our oil
and gas properties and to ultimately develop cash flow from operations and reach
profitable operations. We currently are in the exploration stage. We are
experiencing significant negative cash flow. Accordingly, the sources of funds
presently available to us are through the sale of equity. We presently believe
that debt financing will not be an alternative to us as certain of our
properties are in the exploration stage. In the event the Merger Agreement is
not consummated, we may finance our business by offering an interest in our oil
and gas properties to be earned by another party or parties carrying out further
exploration and development thereof or to obtain project or operating financing
from financial institutions, neither of which is presently intended. If we are
unable to obtain this additional financing, we will not be able to continue our
exploration activities and our
assessment of the commercial viability of our oil and gas property. Further, if
we are able to establish that development of our oil and gas property is
commercially viable, our inability to raise additional financing at this stage
would result in our inability to place our oil and gas properties into
production and recover our investment and potentially dilute our interest in the
property with the drilling of future wells.

















As our
oil and gas property does not contain any proved reserves, we may not discover
commercially exploitable quantities of oil or gas on our property that would
enable us to enter into commercial production, achieve revenues and recover the
money we spend on exploration.






Our
property does not contain proved reserves in accordance with the definitions
adopted by the SEC and there is no assurance that any exploration programs that
we carry out will establish reserves. Our oil and gas property is in the
exploration stage as opposed to the development stage and has no known body of
reserves. Any reserves at these projects have not yet been determined to be
economic, and may never be determined to be economic. In the event the Merger
Agreement is not consummated, we plan to conduct further exploration activities
on our oil and gas property, which future exploration may include the completion
of feasibility studies necessary to evaluate whether commercial reserves exist
on any of our oil and gas leases. There is a substantial risk that these
exploration activities will not result in discoveries of commercially
recoverable reserves of oil or gas. Any determination that our property contains
commercially recoverable quantities of oil or gas may not be reached until such
time that final comprehensive feasibility studies have been concluded that
establish that a potential reserve is likely to be economic. There is a
substantial risk that any preliminary or final feasibility studies carried out
by us will not result in a positive determination that our oil and gas property
can be commercially developed.




Our
Exploration Activities on Our Oil and Gas Property and Potential Lease
Acquisitions May Not Be Commercially Successful, Which Could Lead Us to Abandon
Our Plans to Develop the Property and Our Investments in
Exploration.


In the
event the Merger Agreement is not consummated, our long-term success depends on
our ability to establish commercially recoverable quantities of oil and natural
gas on the property that constitutes the Westrock Leases and the property under
the Joint Development Project that can then be developed into commercially
viable operations. Oil and gas exploration is highly speculative in nature,
involves many risks and is frequently non-productive. These risks include
unusual or unexpected geologic formations, and the inability to obtain suitable
or adequate machinery, equipment or labor. The success of oil and gas
exploration is determined in part by the following factors:


  identification
of potential oil and natural gas reserves based on technical
analyses;
    availability
of government-granted exploration permits;
    the
quality of management and geological and technical
expertise; and
    the
capital available for exploration.


Substantial
expenditures are required to establish proven and probable reserves through
drilling and analysis, to develop processes to extract oil and gas, and to
develop the drilling and processing facilities and infrastructure at any chosen
site. Whether an oil and gas reserve will be commercially viable depends on a
number of factors, which include, without limitation, the particular attributes
of the reserve; oil and natural gas prices, which fluctuate widely; and
government regulations, including, without limitation, regulations relating to
prices, taxes, royalties, land tenure, land use, importing and exporting of oil
and gas and environmental protection. We may invest significant capital and
resources in exploration activities and abandon such investments if we are
unable to identify commercially exploitable reserves. The decision to abandon a
project may reduce the trading price of our common stock and impair our ability
to raise future financing. We cannot provide any assurance to investors that we
will discover or acquire any oil or gas reserves in sufficient quantities on our
property to justify commercial operations. Further, we will not be able to
recover the funds that we spend on exploration if we are not able to establish
commercially recoverable reserves of oil or natural gas on our
property.
  Our
Business is Difficult to Evaluate Because We Have a Limited Operating
History.





In
considering whether to invest in our common stock, you should consider that
there is only limited historical financial and operating information available
on which to base your evaluation of our performance and the potential
consummation of the Merger Agreement. Our inception was May 11, 2006 and, as a
result, we have a limited operating history.





We
Have a History of Operating Losses and There Can Be No Assurance We Will Be
Profitable in the Future.





We have a
history of operating losses, expect to continue to incur losses, and may never
be profitable, and we must be considered to be in the exploration stage.
Further, we have been dependent on sales of our equity securities and debt
financing to meet our cash requirements. We have incurred losses totaling
$2,071,461 from May 11, 2006 (inception) to December 31, 2009. As of December
31, 2009, we had an accumulated deficit of $2,071,461 and had incurred losses of
$1,896,158 during fiscal year ended December 31, 2009. Further, we do not expect
positive cash flow from operations in the near term. There is no assurance that
actual cash requirements will not exceed our estimates. In particular,
additional capital may be required in the event that: (i) the costs to acquire
additional leases are more than we currently anticipate; (ii) drilling and
completion costs for additional wells increase beyond our expectations; or (iii)
we encounter greater costs associated with general and administrative expenses
or offering costs.





Our
development of and participation in what could evolve into an increasing number
of oil and gas prospects may require substantial capital expenditures. The
uncertainty and factors described throughout this section may impede our ability
to economically find, develop, produce, and acquire natural gas and oil
reserves. As a result, we may not be able to achieve or sustain profitability or
positive cash flows from operating activities in the future.











18








We
Have Received a Going Concern Opinion In the Report of our Independent
Registered Public Accounting Firm Accompanying Our December 31, 2009 and
December 31, 2008 Financial Statements.





The
independent registered public accounting firm’s report accompanying our December
31, 2009 and 2008 audited financial statements contains an explanatory paragraph
expressing substantial doubt about our ability to continue as a going concern.
The financial statements have been prepared "assuming that the Company will
continue as a going concern." Our ability to continue as a going concern is
dependent on raising additional capital to fund our operations and ultimately on
generating future profitable operations. There can be no assurance that we will
be able to raise sufficient additional capital or eventually have positive cash
flow from operations to address all of our cash flow needs. If we are not able
to find alternative sources of cash or generate positive cash flow from
operations, our business and shareholders will be materially and adversely
affected





We
Will Require Additional Funding in the Future.





Based
upon our historical losses from operations and in the event the Merger Agreement
is not consummated, we will require additional funding in the future. If we
cannot obtain capital through financings or otherwise, our ability to execute
our exploration plans and achieve production levels will be greatly limited. Our
current exploration plans require us to make capital expenditures for the
drilling and completion of our oil and natural gas property. Historically, we
have funded our operations through the issuance of equity. We may not be able to
obtain additional financing on favorable terms, if at all. Our future cash flows
and the availability of financing will be subject to a number of variables,
including potential production and the market prices of oil and natural gas.
Further, debt financing, if utilized, could lead to a diversion of cash flow to
satisfy debt-servicing obligations and create restrictions on business
operations. In the event the Merger Agreement is not consummated and we are
unable to raise additional funds, it would have a material adverse effect upon
our operations.





In
the Event the Merger Agreement is Not Consummated, as Part of Our Potential
Growth Strategy, We May Acquire Additional Oil and Gas Properties.





In the
event the Merger Agreement is not consummated and as part of our growth
strategy, we may acquire additional oil and gas production properties. Current
and subsequent acquisitions may pose substantial risks to our business,
financial condition, and results of operations. In pursuing potential
acquisitions, we will compete with other companies, many of which have greater
financial and other resources to acquire attractive properties. Even if we are
successful in acquiring additional properties, some of the properties may not
produce revenues at  anticipated levels or failure to conduct drilling
on prospects within specified time periods may cause the forfeiture of the lease
in that prospect. There can be no assurance that we will be able to successfully
integrate acquired properties, which could result in substantial costs and
delays or other operational, technical, or financial problems. Further,
acquisitions could disrupt ongoing business operations. If any of these events
occur, it would have a material adverse effect upon our operations and results
from operations.














19





We
Are a New Entrant Into the Oil and Gas Exploration and Production Industry
Without Profitable Operating History.





Since
inception, our activities have been limited to organizational efforts, obtaining
working capital, acquiring the Westrock Lease and consummating the Joint
Development Project. As a result, there is limited information regarding
property related production potential or revenue generation potential. Further,
our Westrock Lease has no probable, proved or developed producing
reserves.





The
business of oil and gas exploration and production is subject to many risks and
if oil and natural gas is found in economic production quantities, the potential
profitability of future possible oil and gas ventures depends upon factors
beyond our control. The potential profitability of oil and natural gas
properties if economic quantities are found, is dependent upon many factors and
risks beyond our control, including, but not limited to: (i) unanticipated
ground conditions; (ii) geological problems; (iii) drilling and other processing
problems; (iv) the occurrence of unusual weather or operating conditions and
other force majeure events; (v) lower than expected reserve quantities; (vi)
accidents; (vii) delays in the receipt of or failure to receive necessary
government permits; (viii) delays in transportation; (ix) labor disputes; (x)
government permit restrictions and regulation restrictions; (xi) unavailability
of materials and equipment; and (xii) the failure of equipment or drilling to
operate in accordance with specifications or expectations.





In
the Event the Merger Agreement is Not Consummated, Our Potential Drilling
Operations May Not Be Successful.





In the
event the Merger Agreement is not consummated, we intend to technically evaluate
certain zones on our property and if results are positive and capital is
available, to drill wells and begin production operations. There can be no
assurance that our current well activities or future drilling activities will be
successful, and we cannot be sure that our overall drilling success rate or our
production operations within a particular area will ever come to fruition, and
if it does, will not decline over time. We may not recover all or any portion of
our capital investment in the wells or the underlying leaseholds. Unsuccessful
drilling activities would have a material adverse effect upon our results of
operations and financial condition. The cost of drilling, completing, and
operating wells is often uncertain, and a number of factors can delay or prevent
drilling operations including: (i) unexpected drilling conditions; (ii) pressure
or irregularities in geological formations; (iii) equipment failures or
accidents; (iv) adverse weather conditions; and (iv) shortages or delays in
availability of drilling rigs and delivery of equipment.





In
the Event the Merger Agreement is Not Consummated, Our Future Production
Initiatives May Not Prove Successful.





There is
no guarantee that our current acquisition activities or potential drilling
locations we have or acquire in the future will ever produce natural gas or oil,
which could have a material adverse effect upon our results of
operations.





In
the Event the Merger Agreement is Not Consummated, Prospects That We Decide to
Drill May Not Yield Natural Gas or Oil in Commercially Viable
Quantities.
















We
describe our current prospects in this Annual Report. Our prospects are in
various stages of preliminary evaluation and assessment and we have not reached
the point where we have committed to drill on the prospects. However, the use of
seismic data, historical drilling logs, offsetting well information, and other
technologies and the study of producing fields in the same area will not enable
us to know conclusively prior to drilling and testing whether natural gas or oil
will be present in sufficient quantities or quality to recover drilling or
completion costs or to be economically viable. In sum, the cost of drilling,
completing and operating any wells is often uncertain and new wells may not be
productive.





We
May Be Unable to Identify Liabilities Associated With the Properties or Obtain
Protection From Sellers Against Them.





In the
event the Merger Agreement is not consummated, one of our growth strategies is
to capitalize on opportunistic acquisitions of oil and natural gas reserves.
However, our reviews of future acquired properties will be inherently incomplete
because it generally is not feasible to review in depth every individual
property involved in each acquisition. A detailed review of records and
properties may not necessarily reveal existing or potential problems, nor will
it permit a buyer to become sufficiently familiar with the properties to assess
fully their deficiencies and potential. Further, environmental problems, such as
ground water contamination, are not necessarily observable even when an
inspection is undertaken. We may not be able to obtain indemnification or other
protections from the sellers against such potential liabilities, which would
have a material adverse effect upon our results of operations.





The
Potential Profitability of Oil and Gas Ventures Depends Upon Global Political
and Market Related Factors Beyond Our Control.





World
prices and markets for oil and gas are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging, controls, or any
combination of these and other factors, and respond to changes in domestic,
international, political, social, and economic environments. Additionally, due
to worldwide economic uncertainty, the availability and cost of funds for
production and other expenses have become increasingly difficult, if not
impossible, to project. These and other changes and events may materially affect
our financial performance. The potential profitability of oil and gas properties
is dependent on these and other factors beyond our control.





Production
of Oil and Gas Resources if Found Are Dependent on Numerous Operational
Uncertainties Specific to the Area of the Resource That Affects its
Profitability.





Production
area specifics affect profitability. Adverse weather conditions can hinder
drilling operations and ongoing production work. A productive well may become
uneconomic in the event water or other deleterious substances are encountered
which impair or prevent the production of oil and/or gas from the well.
Production and treatments on other wells in the area can have either a positive
or negative effect on our production and wells. In addition, production from any
well may be unmarketable if it is impregnated with water or other deleterious
substances. The marketability of oil and gas from any specific reserve which may
be acquired or discovered will be affected by numerous factors beyond our
control. These factors include, but are not limited to, the proximity and
capacity of oil and gas pipelines, availability of room in the pipelines to
accommodate additional production, processing and production equipment operating
costs and equipment efficiency, market fluctuations of prices and oil and gas
marketing relationships, local and state taxes, mineral owner and other
royalties, land tenure, lease bonus costs and lease damage costs, allowable
production, and environmental protection. These factors cannot be accurately
predicted and the combination of these factors may result in us not receiving an
adequate return on our invested capital.
















If
Production Results From Operations, We are Dependent Upon Transportation and
Storage Services Provided by Third Parties.





We will
be dependent on the transportation and storage services offered by various
interstate and intrastate pipeline companies for the delivery and sale of our
gas supplies. Both the performance of transportation and storage services by
interstate pipelines and the rates charged for such services are subject to the
jurisdiction of the Federal Energy Regulatory Commission or state regulatory
agencies. An inability to obtain transportation and/or storage services at
competitive rates could hinder our processing and marketing operations and/or
affect our sales margins.





Our
Results of Operations are Dependent Upon Market Prices for Oil and Gas, Which
Fluctuate Widely and are Beyond Our Control.





If and
when production from oil and gas properties is reached, our revenue,
profitability, and cash flow depend upon the prices and demand for oil and
natural gas. The markets for these commodities are very volatile and even
relatively modest drops in prices can significantly affect our financial results
and impede our growth. Prices received also will affect the amount of future
cash flow available for capital expenditures and may affect our ability to raise
additional capital. Lower prices may also affect the amount of natural gas and
oil that can be economically produced from reserves either discovered or
acquired. Factors that can cause price fluctuations include: (i) the level of
consumer product demand; (ii) domestic and foreign governmental regulations;
(iii) the price and availability of alternative fuels; (iv) technical advances
affecting energy consumption; (v) proximity and capacity of oil and gas
pipelines and other transportation facilities; (vi) political conditions in
natural gas and oil producing regions; (vii) the domestic and foreign supply of
natural gas and oil; (viii) the ability of members of Organization of Petroleum
Exporting Countries to agree to and maintain oil price and production controls;
(ix) the price of foreign imports; and (x) overall domestic and global economic
conditions.





The
availability of a ready market for our oil and gas depends upon numerous factors
beyond our control, including the extent of domestic production and importation
of oil and gas, the relative status of the domestic and international economies,
the proximity of our properties to gas gathering systems, the capacity of those
systems, the marketing of other competitive fuels, fluctuations in seasonal
demand and governmental regulation of production, refining, transportation and
pricing of oil, natural gas and other fuels.





The
Oil and Gas Industry in Which We Operate Involves Many Industry Related
Operating and Implementation Risks That Can Cause Substantial Losses Including,
But not Limited to, Unproductive Wells, Natural Disasters, Facility and
Equipment Problems and Environmental Hazards.
















Our
future drilling activities will be subject to many risks, including the risk
that we will not discover commercially productive reservoirs. Drilling for oil
and natural gas can be unprofitable, not only from dry holes, but from
productive wells that do not produce sufficient revenues to return a profit. In
addition, our drilling and producing operations may be curtailed, delayed or
canceled as a result of other drilling and production, weather and natural
disaster, equipment and service failure, environmental and regulatory, and site
specific related factors, including but not limited to: (i) fires; (ii)
explosions; (iii) blow-outs and surface cratering; (iv) uncontrollable flows of
underground natural gas, oil, or formation water; (v) natural disasters; (vi)
facility and equipment failures; (vii) title problems; (viii) shortages or
delivery delays of equipment and services; (ix) abnormal pressure formations;
and (x) environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures and discharges of toxic gases.





If any of
these events occur, we could incur substantial losses as a result of: (i) injury
or loss of life; (ii) severe damage to and destruction of property, natural
resources or equipment; (iii) pollution and other environmental damage; (iv)
clean-up responsibilities; (v) regulatory investigation and penalties; (vi)
suspension of our operations; or (vii) repairs necessary to resume
operations.





If we
were to experience any of these problems, it could affect well bores, gathering
systems and processing facilities, any one of which could adversely affect our
ability to conduct operations. We may be affected by any of these events more
than larger companies, since we have limited working capital.





The
Oil and Gas Industry is Highly Competitive and There is No Assurance That We
Will Be Successful in Acquiring Leases.





The oil
and natural gas industry is intensely competitive, and we compete with other
companies that have greater resources. Many of these companies not only explore
for and produce oil and natural gas, but also carry on refining operations and
market petroleum and other products on a regional, national or worldwide basis.
These companies may be able to pay more for productive oil and natural gas
properties and exploratory prospects or define, evaluate, bid for and purchase a
greater number of properties and prospects than our financial or human resources
permit. In addition, these companies may have a greater ability to continue
exploration activities during periods of low oil and natural gas market prices.
Our larger competitors may be able to absorb the burden of present and future
federal, state, local and other laws and regulations more easily than we can,
which would adversely affect our competitive position. Our ability to acquire
additional properties and to discover reserves in the future will be dependent
upon our ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment. In addition, because we have
fewer financial and human resources than many companies in our industry, we may
be at a disadvantage in bidding for exploratory prospects and producing oil and
natural gas properties.














23





The
Marketability of Natural Resources Will be Affected by Numerous Factors Beyond
Our Control, Which May Result in Us not Receiving an Adequate Return on Invested
Capital to be Profitable or Viable.





The
marketability of natural resources which may be acquired or discovered by us
will be affected by numerous factors beyond our control. These factors include
market fluctuations in oil and gas pricing and demand, the proximity and
capacity of natural resource markets and processing equipment, governmental
regulations, land tenure, land use, regulation concerning the importing and
exporting of oil and gas and environmental protection regulations. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in us not receiving an adequate return on invested
capital to be profitable or viable.





Oil
and Gas Operations are Subject to Comprehensive Regulation Which May Cause
Substantial Delays or Require Capital Outlays in Excess of Those Anticipated,
Causing an Adverse Effect on Our Business Operations.





Oil and
gas operations are subject to federal, state, and local laws relating to the
protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. To date we have not been required
to spend material amounts on compliance with environmental regulations. However,
we may be required to do so in future and this may affect our ability to expand
or maintain our operations.





In
general, our future exploration and production activities will be subject to
certain federal, state and local laws and regulations relating to environmental
quality and pollution control. Such laws and regulations increase the costs of
these activities and may prevent or delay the commencement or continuance of a
given operation. Compliance with these laws and regulations has not had a
material effect on our operations or financial condition to date. Specifically,
we are subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.





We
believe that our operations comply, in all material respects, with all
applicable environmental regulations. We need insurance to protect ourselves
against risks associated with the leases obtained. The leases allow for entry
onto the properties for the purposes of oil and gas exploration. The insurance
we require relates solely to developments on the properties for the purposes of
oil and gas exploration.











24








Any
Change to Government Regulation/Administrative Practices May Have a Negative
Impact on Our Ability to Operate and Our Profitability.





The laws,
regulations, policies or current administrative practices of any government
body, organization or regulatory agency in the United States or any other
jurisdiction, may be changed, applied or interpreted in a manner which will
fundamentally alter our ability to carry on business. The actions, policies or
regulations, or changes thereto, of any government body or regulatory agency, or
other special interest groups, may have a detrimental effect on us. Any or all
of these situations may have a negative impact on our ability to operate and/or
our profitability.





We
May be Unable to Retain Key Employees or Consultants or Recruit Additional
Qualified Personnel.





Our
extremely limited personnel means that we would be required to spend significant
sums of money to locate and train new employees in the event any of our
employees resign or terminate their employment with us for any reason. Due to
our limited operating history and financial resources, we are entirely dependent
on the continued service of Steve Harding, our Chief Executive Officer, and
Brian Manko, our Chief Financial Officer. Further, we do not have key man life
insurance on either of these individuals. We may not have the financial
resources to hire a replacement if one or both of our officers were to die. The
loss of service of either of these employees could therefore significantly and
adversely affect our operations.





Our
Officers and Directors May be Subject to Conflicts of Interest.





Some of
our officers and directors serve only part time and can become subject to
conflicts of interest. Some devote part of their working time to other business
endeavors, including consulting relationships with other entities, and have
responsibilities to these other entities. Such conflicts include deciding how
much time to devote to our affairs, as well as what business opportunities
should be presented to us. Because of these relationships, our officers and
directors could be subject to conflicts of interest. Currently, we have no
policy in place to address such conflicts of interest.





Nevada
Law and Our Articles of Incorporation May Protect our Directors From Certain
Types of Lawsuits.





Nevada
law provides that our officers and directors will not be liable to us or our
stockholders for monetary damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
officers and directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our officers and directors against claims, including claims
arising out of their negligence, poor judgment, or other
circumstances.














A
Majority of Our Directors and Officers Are Nationals and/or Residents of
Canada.





Currently,
the majority of our directors and officers reside in Canada. Therefore, it may
be difficult for investors to enforce within the United States any judgments
obtained against us or any of our directors or officers. All or a substantial
portion of such persons' assets may be located outside the United States. As a
result, it may be difficult for investors to effect service of process on our
directors or officers, or enforce within the United States or Canada any
judgments obtained against us or our officers or directors, including judgments
predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof. Consequently, you may be effectively
prevented from pursuing remedies under U.S. federal securities laws against
them. In addition, investors may not be able to commence an action in a Canadian
court predicated upon the civil liability provisions of the securities laws of
the United States. We have been advised by our Canadian counsel that there is
doubt as to the enforceability, in original actions in Canadian courts, of
liability based upon the U.S. federal securities laws and as to the
enforceability in Canadian courts of judgments of U.S. courts obtained in
actions based upon the civil liability provisions of the U.S. federal securities
laws. Therefore, it may not be possible to enforce those actions against us or
any of our directors or officers.





RISKS
RELATED TO OUR COMMON STOCK





Sales
of a Substantial Number of Shares of Our Common Stock Into the Public Market by
Certain Stockholders May Result in Significant Downward Pressure on the Price of
Our Common Stock and Could Affect Your Ability to Realize the Current Trading
Price of Our Common Stock.





Sales of
a substantial number of shares of our common stock in the public market by
certain stockholders could cause a reduction in the market price of our common
stock.  As of the date of this Annual Report, we have 60,273,333
shares of common stock issued and outstanding. Of the total number of issued and
outstanding shares of common stock, certain stockholders are able to resell up
to 41,475,000 shares of our common stock pursuant to the Registration Statement
declared effective on March 17, 2007. As a result of the Registration Statement,
44,437,500 shares of our common stock were issued and are available for
immediate resale which could have an adverse effect on the price of our common
stock.





As of the
date of this Annual Report, there are 15,048,333 outstanding shares of our
common stock that are restricted securities as that term is defined in Rule 144
under the Securities Act of 1933, as amended (the “Securities Act”). Although
the Securities Act and Rule 144 place certain prohibitions on the sale of
restricted securities, restricted securities may be sold into the public market
under certain conditions. Further, as of the date of this Annual Report, there
are an aggregate of 659,166 whole warrants outstanding. See “Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.”





Any
significant downward pressure on the price of our common stock as the selling
stockholders sell their shares of our common stock could encourage short sales
by the selling stockholders or others. Any such short sales could place further
downward pressure on the price of our common stock.











26








The
Trading Price of Our Common Stock on the OTC Bulletin Board Will Fluctuate
Significantly and Stockholders May Have Difficulty Reselling Their
Shares.





As of the
date of this Annual Report, our common stock trades on the Over-the-Counter
Bulletin Board. There is a volatility associated with Bulletin Board securities
in general and the value of your investment could decline due to the impact of
any of the following factors upon the market price of our common stock: (i)
disappointing results from our exploration or development efforts; (ii) failure
to meet our revenue or profit goals or operating budget; (iii) decline in demand
for our common stock; (iv) downward revisions in securities analysts' estimates
or changes in general market conditions; (v) technological innovations by
competitors or in competing technologies; (vi) lack of funding generated for
operations; (vii) investor perception of our industry or our prospects; (viii)
general economic trends; and ix) Commodity price fluctuation





In
addition, stock markets have experienced price and volume fluctuations and the
market prices of securities have been highly volatile. These fluctuations are
often unrelated to operating performance and may adversely affect the market
price of our common stock. As a result, investors may be unable to sell their
shares at a fair price and you may lose all or part of your
investment.





Additional
Issuance of Equity Securities May Result in Dilution to Our Existing
Stockholders.





Our
Articles of Incorporation, as amended, authorize the issuance of 150,000,000
shares of common stock. The Board of Directors has the authority to issue
additional shares of our capital stock to provide additional financing in the
future and the issuance of any such shares may result in a reduction of the book
value or market price of the then outstanding shares of our common stock. If we
do issue any such additional shares, such issuance also will cause a reduction
in the proportionate ownership and voting power of all other stockholders. As a
result of such dilution, your proportionate ownership interest and voting power
will be decreased accordingly. Further, any such issuance could result in a
change of control.





Our
Common Stock is Classified as a “Penny Stock” Under SEC Rules Which Limits the
Market for Our Common Stock.





The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and sales person in the transaction, and











27








monthly
account statements indicating the market value of each penny stock held in the
customer's account. In addition, the penny stock rules require that, prior to a
transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their
shares.





A
Majority of Our Directors and Officers are Outside the United States With the
Result That it May Be Difficult for Investors to Enforce Within the United
States Any Judgments Obtained Against Us or Any of Our Directors or
Officers.





A
majority of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of such
persons' assets are located outside the United States. As a result, it may be
difficult for investors to effect service of process on our directors or
officers, or enforce within the United States or Canada any judgments obtained
against us or our officers or directors, including judgments predicated upon the
civil liability provisions of the securities laws of the United States or any
state thereof. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal securities laws against them. In addition, investors
may not be able to commence an action in a Canadian court predicated upon the
civil liability provisions of the securities laws of the United
States.





RISKS
RELATED TO THE MERGER AGREEMENT





The
Exchange Ratio in the Merger Agreement is Generally Fixed. Because the Market
Price of Shares of Mainland Resources Common Stock May Fluctuate, Our
Shareholders Cannot be Sure of the Market Value of the Shares of Mainland
Resources Common Stock That Will be Issued in Connection with the
Merger.




It is
presently contemplated that our shareholders will receive one share of common
stock of Mainland Resources for every four shares of our common stock they hold
of record. Currently, there are 60,273,333 shares of our common stock issued and
outstanding with the result that approximately 15,068,333 shares of Mainland
Resources’ common stock are anticipated to be issued to our shareholders upon
completion of the merger. The specific share exchange ratio will be negotiated
following the completion of “fairness opinions” conducted by independent
financial advisors and technical due diligence by both Mainland and American.
Based on the closing market price of Mainland Resources’ common stock of $1.25
per share as reported by the OTC Bulletin Board on March 18, 2010, the total
share consideration to be issued to our shareholders will be worth approximately
$18,835,416 and our shareholders will hold approximately twenty percent (20%) of
the total issued and outstanding shares of common stock of Mainland Resources as
the surviving corporation.




The ratio
(the “Exchange Ratio”) which determines the number of shares of Mainland
Resources common stock that are to be issued on completion of the merger for all
of our shares of common stock is subject to reduction by the shares of our
common stock held by those stockholders, if any, who elect to exercise dissent
rights under Nevada law.  The Exchange Ratio also may be adjusted by
good faith negotiation between the parties, if required, having regard to: (i)
the results of the due diligence investigation of a party’s business and affairs
by the other party; (ii) the Fairness Opinions.















The
Merger Agreement also contemplates that: (i) all of our outstanding stock
options (the “Stock Options”) will be disposed of by the holders thereof in
consideration for the issue by Mainland Resources of non-transferable stock
options (the “Mainland Exchange Options”); and (b) all of our outstanding common
stock purchase warrants (the “Warrants”) will be disposed of by the holders
thereof in consideration for the issue by Mainland Resources of non-transferable
common stock purchase warrants (the “Mainland Exchange Warrants”). The number of
Mainland Exchange Options and Mainland Exchange Warrants issuable, and the
respective exercise prices thereof, will be determined with reference to the
Exchange Ratio. Currently, the Exchange Ratio is anticipated to be one Mainland
Exchange Option or one Mainland Exchange Warrant for every four of our Stock
Options or every four of our Warrants, as the case may be, and the exercise
price of each Mainland Exchange Option or each Mainland Exchange Warrant is
anticipated to be determined by multiplying the per share exercise price of the
corresponding American Exploration Options or American Exploration Warrants by
four.




The
Merger Agreement provides that not more than 15,000,000 shares of Mainland
Resources common stock shall be issued in exchange for our shares of common
stock pursuant to the merger (exclusive of any shares of Mainland Resources’
common stock issued in exchange for shares of our common stock which are issued
upon exercise prior to closing of any of our outstanding Options or
Warrants).




The
Price of Mainland Resources’ Common Stock After Consummation of the Merger May
be Volatile and Subject to Wide Fluctuations.






The
trading price of Mainland Resources’ common stock has historically fluctuated
significantly. The price of Mainland Resources’ common stock could be subject to
wide fluctuations in the future in response to many events or factors, including
those related to the merger, as well as: (i) actual or anticipated fluctuations
in operating results; (ii)  changes in expectations as to future
financial performance or buy/sell recommendations of securities analysts; (iii)
its inability to raise additional capital; (iv) actions of Mainland Resources’
current shareholders, including sales of common stock by directors and executive
officers of Mainland Resources; and (v) the arrival or departure of key
personnel.






General
market conditions and domestic or international factors unrelated to the
performance by Mainland Resources may also affect the price of Mainland
Resources’ common stock.






ITEM 1B. UNRESOLVED
STAFF COMMENTS






No report
is required.




ITEM 2. PROPERTY
















Our
principal office space is located at Suite 700, 407 2nd
Street SW, Calgary, Alberta, Canada T2P 2Y3. The office space is for corporate
identification, mailing, and courier purposes only and is provided to American
Exploration at no cost, relating to a previous business relationship between us
and our President/Chief Executive Officer. The office and services related
thereto may be cancelled at any time.





ITEM
3. LEGAL PROCEEDINGS





Management
is not aware of any legal proceedings contemplated by any governmental authority
or any other party involving us or our properties. As of the date of this Annual
Report, no director, officer or affiliate is (i) a party adverse to us in any
legal proceeding, or (ii) has an adverse interest to us in any legal
proceedings. Management is not aware of any other legal proceedings pending or
that have been threatened against us or our properties.





ITEM
4. REMOVED AND RESERVED








PART
II





ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES





MARKET
FOR COMMON EQUITY





Shares of
our common stock commenced trading on the OTC Bulletin Board under the symbol
“AEXP:OB” in December 2008. The market for our common stock is limited, and can
be volatile. The following table sets forth the high and low bid prices relating
to our common stock on a quarterly basis for the periods indicated as quoted by
the NASDAQ stock market. These quotations reflect inter-dealer prices without
retail mark-up, mark-down, or commissions, and may not reflect actual
transactions.




Quarter
      Ended
            High
      Bid
            Low
      BidDecember
      31, 2008
            $0.67
            $0.60March
      31, 2009
            $0.84
            $0.35June
      30, 2009
            $1.05
            $0.35September
      30, 2009
            $2.55
            $0.65December
      31, 2009
            $1.50
            $0.35





All
amounts have been adjusted for stock splits.





As of
March 23, 2010, we had 33 shareholders of record, which does not include
shareholders whose shares are held in street or nominee names.





DIVIDEND
POLICY





No
dividends have ever been declared by the Board of Directors on our common stock.
Our losses do not currently indicate the ability to pay any cash dividends, and
we do not have the intention of paying cash dividends on our common stock in the
foreseeable future.
















SECURITIES
AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS





We have
one equity compensation plan, the American Exploration Corporation 2009 Stock
Option Plan (the “2009 Plan”). The table set forth below presents information
relating to our equity compensation plans as of the date of this Annual
Report:





Plan
      Category
            Number
      of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
      and Rights
                (a)
            Weighted-Average
      Exercise Price of Outstanding Options, Warrants and Rights
                (b)
            Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans (excluding column (a))Equity
      Compensation Plans Approved by Security Holders
              2009
      Stock Option Plan
            2,700,000
            $0.80
            4,300,000Equity
      Compensation   Plans Not Approved by Security
      Holders
              Warrants
            659,166
            0.63
            -0-Total
            3,359,166





2009
Stock Option Plan





On
September 14, 2009, our Board of Directors authorized and approved the adoption
of the 2009 Plan effective September 14, 2009, under which an aggregate of
7,000,000 of our shares may be issued. During fiscal year ended December 31,
2009, we granted an aggregate 2,700,000 Stock Options. Of the 2,700,000 Stock
Options, 2,150,000 were granted to our directors, 150,000 were granted to our
Chief Financial Officer, and 400,000 were granted to consultants. The 2,150,000
Stock Options granted to our directors, the 150,000 Stock Options granted to our
Chief Financial Officer and 350,000 of the Stock Options granted to consultants,
vest in increments of one third (883,333 Stock Options) during September 2009,
one-third (883,333 Stock Options) during September 2012 and one-third (883,334
Stock Options) during September 2015, at an exercise price of $0.80 per share
with a life of ten years commencing on September 14, 2009. The remaining 50,000
Stock Options granted to consultants vested immediately, are exercisable at
$0.80 per share for a period of ten years from the date of grant.
















The
purpose of the 2009 Plan is to enhance our long-term stockholder value by
offering opportunities to our directors, officers, employees and eligible
consultants to acquire and maintain stock ownership in order to give these
persons the opportunity to participate in our growth and success, and to
encourage them to remain in our service.





The 2009
Plan is to be administered by our Board of Directors or a committee appointed by
and consisting of one or more members of the Board of Directors, which shall
determine (i) the persons to be granted Stock Options under the 2009 Plan; (ii)
the number of shares subject to each option, the exercise price of each Stock
Option; and (iii) whether the Stock Option shall be exercisable at any time
during the option period up to ten (10) years or whether the Stock Option shall
be exercisable in installments or by vesting only. The 2009 Plan provides
authorization to the Board of Directors to grant Stock Options to purchase a
total number of shares of Common Stock of the Company, not to exceed 7,000,000
shares as at the date of adoption by the Board of Directors of the 2009 Plan. At
the time a Stock Option is granted under the 2009 Plan, the Board of Directors
shall fix and determine the exercise price at which shares of our common stock
may be acquired.





In the
event an optionee ceases to be employed by or to provide services to us for
reasons other than cause, retirement, disability or death, any Stock Option that
is vested and held by such optionee generally may be exercisable within up to
ninety (90) calendar days after the effective date that his position ceases, and
after such 90-day period any unexercised Stock Option shall expire. In the event
an optionee ceases to be employed by or to provide services to us for reasons of
retirement, disability or death, any Stock Option that is vested and held by
such optionee generally may be exercisable within up to one-year after the
effective date that his position ceases, and after such one-year period, any
unexercised Stock Option shall expire.





No Stock
Options granted under the Stock Option Plan will be transferable by the
optionee, and each Stock Option will be exercisable during the lifetime of the
optionee subject to the option period up to ten (10) years or the limitations
described above. Any Stock Option held by an optionee at the time of his death
may be exercised by his estate within one (1) year of his death or such longer
period as the Board of Directors may determine.





The
exercise price of a Stock Option granted pursuant to the 2009 Plan shall be paid
in full to us by delivery of consideration equal to the product of the Stock
Option in accordance with the requirements of the Nevada Revised Statutes. Any
Stock Option settlement, including payment deferrals or payments deemed made by
way of settlement of pre-existing indebtedness, may be subject to such
conditions, restrictions and contingencies as may be determined.





Incentive Stock
Options





The 2009
Plan further provides that, subject to the provisions of the Stock Option Plan
and prior shareholder approval, the Board of Directors may grant to any key
individuals who are our employees eligible to receive options, one or more
incentive stock options to purchase the number of shares of common stock
allotted by the Board of Directors (the "Incentive Stock Options"). The option
price per share of common stock deliverable upon the exercise of an Incentive
Stock Option shall be at least 100% of the fair market value of the common
shares of the Company at the date of the grant, and in the case of an Incentive
Stock Option granted to an optionee who owns more than 10% of the total combined
voting power of all classes of our stock, shall not be less than 100% of the
fair market value of our common shares. The option term of each Incentive Stock
Option shall be determined by the Board of Directors, which shall not commence
sooner than from the date of grant and shall terminate no later than ten (10)
years from the date of grant of the Incentive Stock Option, subject to possible
early termination as described above.





As of the
date of this Annual Report, no Stock Options have been exercised.
















Common
Stock Purchase Warrants





As of the
date of this Annual Report, there are an aggregate of 659,166 common stock whole
purchase warrants issued and outstanding (the “Warrants). The 652,916 Warrants
issued and outstanding at December 31, 2009, to purchase shares of our common
stock were issued in a private placement by us during fiscal year ended December
31, 2009 with exercise prices ranging from  $0.50, $1.00, $1.25, $1.33
and $1.50 respectively and are exercisable for a period of twelve months from
the date of share issuance.  As of the date of this Annual Report,
143,749 Warrants expired, but none of the remaining 659,166 Warrants have been
exercised.





RECENT
SALES OF UNREGISTERED SECURITIES





As of the
date of this Annual Report and during fiscal year ended December 31, 2009, to
provide capital, we sold stock in private placement offerings, issued stock in
exchange for our debts or pursuant to contractual agreements as set forth
below.





WESTROCK
OPTION AGREEMENT




Effective
on August 17, 2009, we entered into the Third Amended Option Agreement with
Westrock. Pursuant to the Third Amended Option Agreement: (i) we issued on
August 19, 2009, an aggregate of 4,037,500 shares, valued at $2,664,750, of our
restricted common stock to Westrock as satisfaction for an aggregate amount of
$2,108,750, which remained due and owing from the aggregate purchase price of
$3,125,000 related to our acquisition of the Westrock lease.






2009
PRIVATE PLACEMENTS




During
February 2009, we completed a private placement offering (the “February 2009
Private Placement Offering”), whereby we issued an aggregate of 487,500 units at
$0.67 per unit for proceeds of $325,000. Each unit consists of one share of our
restricted common stock and one-half of one non-transferable share purchase
warrant exercisable at $1.33 per share for a period of twelve months from the
date of share issuance. The February 2009 Private Placement Offering was
completed in reliance on Regulation S of the Securities Act of 1933, as amended
(the “Securities Act”). Sales were made to only non-U.S. residents. The February
2009 Private Placement Offering was not registered under the Securities Act or
under any state securities laws and may not be offered or sold without
registration with the Securities and Exchange Commission or an applicable
exemption from the registration requirements. The per share price of the
February 2009 Private Placement Offering was arbitrarily determined by our Board
of Directors based upon analysis of certain factors including, but not limited
to, stage of development, industry status, investment climate, perceived
investment risks, our assets and net estimated worth.















Effective
on August 17, 2009, we completed a private placement offering (the “August 17,
2009 Private Placement”) with a certain non-United States resident (the
“Investor”). In accordance with the terms and provisions of the August 17, 2009
Private Placement, we issued to the Investor an aggregate of 400,000 units at a
per unit price of $0.50 for aggregate proceeds of $200,000. Each unit was
comprised of one share of restricted common stock and one-half non-transferrable
warrant (the “Warrant”). Each whole Warrant is exercisable at $0.50 per share
for a period of one year.






Effective
on August 31, 2009, we also completed a private placement offering (the “August
31, 2009 Private Placement”) with a certain non-United States resident (the
“Investor”). In accordance with the terms and provisions of the August 31 2009
Private Placement, we issued to the Investor an aggregate of 260,000 units at a
per unit price of $0.50 for aggregate proceeds of $130,000. Each unit was
comprised of one share of restricted common stock and one-half non-transferrable
warrant. Each whole Warrant is exercisable at $1.00 per share of a period of one
year.






The Units
under the August 2009 Private Placements were sold to non-United States
Investors in reliance on Regulation S promulgated under the Securities Act. The
August 2009 Private Placements have not been registered under the Securities Act
or under any state securities laws and may not be offered or sold without
registration with the United States Securities and Exchange Commission or an
applicable exemption from the registration requirements. The Investors executed
a subscription agreement and acknowledged that the securities to be issued have
not been registered under the Securities Act, that they understood the economic
risk of an investment in the securities, and that they had the opportunity to
ask questions of and receive answers from our management concerning any and all
matters related to acquisition of the securities.




Effective
on September 21, 2009, we completed certain private placement offerings
(collectively, the “September 2009 Private Placements”) with certain non-United
States residents. In accordance with the terms and provisions of the September
2009 Private Placements, we issued to certain investors an aggregate of 133,333
units at a per unit price of $0.75 for aggregate proceeds of $100,000. Each unit
was comprised of one share of restricted common stock and one-half
non-transferrable Warrant. Each whole Warrant is exercisable at $1.25 per share
for a period of one year. On September 24, 2009, we further issued to certain
investors an aggregate 25,000 Units at a per unit price of $1.00 for aggregate
proceeds of $25,000. Each Unit was comprised of one share of restricted common
stock and one-half non-transferrable Warrant. Each whole Warrant is exercisable
at $1.50 per share for a period of one year.





The Units
under the September 2009 Private Placement were sold to non-United States
residents in reliance on Regulation S promulgated under the United States
Securities Act of 1933, as amended (the “Securities Act”). The September 2009
Private Placement has not been registered under the Securities Act or under any
state securities laws and may not be offered or sold without registration with
the United States Securities and Exchange Commission or an applicable exemption
from the registration requirements. The investors executed a subscription
agreement and acknowledged that the securities to be issued have not been
registered under the Securities Act, that they understood the economic risk of
an investment in the securities, and that they had the opportunity to ask
questions of and receive answers from our management concerning any and all
matters related to acquisition of the securities.





During
October 2009, we completed a private placement offering, whereby we issued an
aggregate of 55,000 units at $1.00 per unit for proceeds of
$55,000.  No warrants were included in this offering.
















TWO
PRIVATE PLACEMENTS WERE COMPLETED IN 2010
 
 On February 24th
2010, we completed a certain private placement offering (the “First 2010 Private
Placement”) with a certain non-United States resident. In accordance with the
terms and provisions of the  First 2010 Private Placement, we issued
to certain investors an aggregate of 300,000 units at a per unit price of $0.25
for aggregate proceeds of $75,000. Each Unit was comprised of one share of
restricted common stock and one-half non-transferable Warrant. Each whole
Warrant is exercisable at $0.50 per share for a period of one year.
  On April 5th, 2010, we completed a certain private
placement offering (the “Second 2010 Private Placement”) with a certain
non-United States resident. In accordance with the terms and provisions of
the  Second 2010 Private Placement, we issued to certain investors an
aggregate of 200,000 units at a per unit price of $0.25 for aggregate proceeds
of $50,000. Each Unit was comprised of one share of restricted common stock and
one-half non-transferable Warrant. Each whole Warrant is exercisable at $0.50
per share for a period of one year.
  The Units under the 2010 Private Placements were sold to a
non-United States resident in reliance on Regulation S promulgated under the
United States Securities Act of 1933, as amended (the “Securities Act”). The
2010 Private Placements have not been registered under the Securities Act or
under any state securities laws and may not be offered or sold without
registration with the United States Securities and Exchange Commission or an
applicable exemption from the registration requirements. The investors executed
a subscription agreement and acknowledged that the securities to be issued have
not been registered under the Securities Act, that he understood the economic
risk of an investment in the securities, and that he had the opportunity to ask
questions of and receive answers from our management concerning any and all
matters related to acquisition of the securities.


2009
FORWARD STOCK SPLIT





On March
26, 2009, our Board of Directors authorized and approved a forward stock split
of 1.5 for one (1.5:1) of our total issued and outstanding shares of common
stock (the “Forward Stock Split”). The Forward Stock Split was effectuated based
on market conditions and upon a determination by our Board of Directors that the
Forward Stock Split was in our best interests and those of the shareholders.
Certain factors were discussed among the members of the Board of Directors
concerning the need for the Forward Stock Split, including the increased
potential for financing. The intent of the Forward Stock Split is to increase
the marketability of our common stock.





The
Forward Stock Split was effectuated on April 13, 2009 upon filing the
appropriate documentation with NASDAQ. The Forward Stock Split increased our
total issued and outstanding shares of common stock from 36,575,000 to
54,862,500 shares of common stock. The common stock will continue to be $0.001
par value.





ITEM
6. SELECTED FINANCIAL DATA





The
following selected financial information is qualified by reference to, and
should be read in conjunction with our financial statements and the notes
thereto, and “Management’s Discussion and Analysis of Financial Condition and
Results of Operation” contained elsewhere herein. The selected income statement
data for fiscal years ended December 31, 2009 and 2008 and the selected balance
sheet data as of December 31, 2009 and 2008 are derived from our audited
financial statements which are included elsewhere herein.
















STATEMENT
      OF INCOME AND EXPENSES
            
            Years
      Ended December 31
                2009
      and 2008
            
            
            For
      the Period from May 11, 2006 (inception) to December 31,
      2009Revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
      ExpensesGeneral
      and administrative expenses
            
            
            1,831,173
            
            
            
            104,328
            
            
            
            2,003,763Depreciation
      and amortization
            
            
            3,333
            
            
            
            681
            
            
            
            4,885Total
      Operating Expenses
            
            
            1,834,506
            
            
            
            105,009
            
            
            
            2,008,648Net
      Loss From Operations
            
            
            (1,834,506
            )
            
            
            (105,009
            )
            
            
            (2,008,648
            )Other
      Income (Expense)Interest
      expense
            
            
            (61,652
            )
            
            
            -
            
            
            
            (61,652
            )Loss
      on sale of assets
            
            
            -
            
            
            
            (1,161
            )
            
            
            (1,161
            )Total
      Other Expense
            
            
            (61,652
            )
            
            
            (1,161
            )
            
            
            (62,813
            )Net
      Loss
            
            $
            (1,896,158
            )
            
            $
            (106,170
            )
            
            $
            (2,071,461
            )BALANCE
      SHEET DATATotal
      Assets
            
            $
            3,786,953
            
            
            $
            950,500Total
      Liabilities
            
            $
            220,957
            
            
            $
            22,553Total
      Stockholders’ Equity
            
            $
            3,565,996
            
            
            $
            927,947






















ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATION





The
following discussion should be read in conjunction with our audited financial
statements and the related notes that appear elsewhere in this Annual Report.
The following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward looking statements. Factors that could cause or
contribute to such differences include, but are not limited to those discussed
below and elsewhere in this Annual Report, particularly in the section entitled
"Risk Factors". Our audited financial statements are stated in United States
Dollars and are prepared in accordance with United States Generally Accepted
Accounting Principles.





We are an
exploration stage company and have not generated any revenue to date. We have
incurred recurring losses to date. Our financial statements have been prepared
assuming that we will continue as a going concern and, accordingly, do not
include adjustments relating to the recoverability and realization of assets and
classification of liabilities that might be necessary should we be unable to
continue in operation.




We expect
we will require additional capital to meet our long term operating requirements.
We expect to raise additional capital through, among other things, the sale of
equity or debt securities.





RESULTS
OF OPERATION





Fiscal
Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31,
2008.





Our net
loss for fiscal year ended December 31, 2009 was $1,896,158 compared to a net
loss of $106,170 during fiscal year ended December 31, 2008, an increase of
$1,789,988. During fiscal years ended December 31, 2009 and 2008, we did not
generate any revenue.





During
fiscal year ended December 31, 2009, we incurred operating expenses of
$1,834,506 compared to $105,009 incurred during fiscal year ended December 31,
2008, an increase of $1,729,497. The increase in operating expenses was
primarily attributable to the following items: (i) professional fees of $206,202
(2008: $49,383); (ii) investor relations of $504,131 (2008: $0); and (iii) stock
option expense of $968,511 (2008: $0).





Operating
expenses incurred during fiscal year ended December 31, 2009 compared to fiscal
year ended December 31, 2008 increased primarily due to the recording of
share-based compensation relating to the grant of Stock Options. Operating
expenses also increased due to professional fees and general and administrative
expenses associated with the increased scope and scale of our business
operations and fees associated with investor relations. We engaged Media Plan AG
(“Media Plan”) to provide us with investor relations and promotional services in
order to enhance our visibility and marketability of our shares in the
marketplace. General and administrative expenses generally include corporate
overhead, financial and administrative contracted services, marketing, and
consulting costs.
















Of the $
1,834,506 incurred as operating expenses during fiscal year ended December 31,
2009, we incurred and paid management fees of $173,000 to our officers and
directors. See "Item 11. Executive Compensation.”





Interest
expense of $61,652 (2008: $-0-) incurred during fiscal year ended December 31,
2009 was recorded. Our net loss during fiscal year ended December 31, 2009 was
$1,896,158 or $0.02 per share compared to a net loss of $106,170 or $0.00 per
share during fiscal year ended December 31, 2008. The weighted average number of
shares outstanding was 76,873,982 for fiscal year ended December 31, 2009
compared to 136,149,658 for fiscal year ended December 31, 2008.





LIQUIDITY
AND CAPITAL RESOURCES





Fiscal
Year Ended December 31, 2009





As of
December 31, 2009, our current assets were $9,560 and our current liabilities
were $220,958, which resulted in a working capital deficit of $211,398. As of
December 31, 2009, current assets were comprised of $9,560 in cash. As of
December 31, 2009, current liabilities were comprised of: (i) $32,500 in
accounts payable and accrued liabilities; (ii) $5,422 in accounts payable–
related party; (iii) $95,227 in short term convertible debt – related party; and
(iv) $87,809 in short term debt – related party.





As of
December 31, 2009, our total assets were $3,786,953 comprised of: (i) $9,560 in
current assets; (ii) $6,392 in website, net of amortization; and (iii)
$3,771,001 in oil and gas properties. The increase in total assets during fiscal
year ended December 31, 2009 from fiscal year ended December 31, 2008 was
primarily due to the purchase of the oil and gas properties.





As of
December 31, 2009, our total liabilities were $220,958 comprised entirely of
current liabilities. The increase in liabilities during fiscal year ended
December 31, 2009 from fiscal year ended December 31, 2008 was primarily due to
the short-term notes payable; amounts due to directors and an increase in
short-term convertible debt.





Stockholders’
equity increased from $927,947 for fiscal year ended December 31, 2008 to
$3,565,996 for fiscal year ended December 31, 2009, primarily due to the
issuance of shares to acquire our oil and gas properties and the 2009 private
placements.





Cash
Flows from Operating Activities





We have
not generated positive cash flows from operating activities. For fiscal year
ended December 31, 2009, net cash flows used in operating activities was
$843,000, consisting primarily of a net loss of $1,896,158 offset by $60,945 in
amortization of debt discount and $968,511 in share-based compensation. Net cash
flows used in operating activities was further changed by $3,333 of depreciation
and amortization, $14,948 relating to accounts payable and accrued liabilities
and $5,421 in accounts payable and accrued liabilities – related
parties.





For
fiscal year ended December 31, 2008, net cash flows used in operating activities
was $89,775, consisting primarily of a net loss of $106,170 offset by $681 in
depreciation and amortization, $1,161 in loss on disposal of assets, and $14,553
relating to accounts payable and accrued liabilities.
















Cash
Flows from Investing Activities





For
fiscal year ended December 31, 2009, net cash flows used in investing activities
was $325,001 for acquisition of unproved oil and gas properties. For fiscal year
ended December 31, 2008, net cash flows used in investing activities was
$791,250 consisting of $781,250 in acquisition of unproved oil and gas
properties and $10,000 in website development.





Cash
Flows from Financing Activities





We have
financed our operations primarily from debt or the issuance of equity
instruments. For the fiscal year ended December 31, 2009, net cash flows
provided from financing activities was $1,018,036 compared to $1,005,000 for
fiscal year ended December 31, 2008. Cash flows from financing activities for
fiscal year ended December 31, 2009 consisted of $835,000 in proceeds from sale
of common stock, $95,227 in proceeds from the issuance of short-term convertible
debt to a related party, and $87,809 in proceeds from related party loans. Cash
flows from financing activities for fiscal year ended December 31, 2008
consisted of $1,000,000 in proceeds from sale of common stock and $5,000 in
proceeds from related party shareholder loans.





We fully
anticipate that the Merger Agreement will be consummated and the merger
transaction effected. Under the terms of the Merger Agreement, American
Exploration’s stockholders will receive one share of Mainland common stock for
every four shares of American Exploration common stock they
own.  Mainland will be the surviving corporation. In the event the
Merger Agreement is not consummated, we expect that working capital requirements
would continue to be funded through a combination of our existing funds and
further issuances of securities. In such an event, our working capital
requirements would be expected to increase in line with the growth of our
business.





PLAN
OF OPERATION AND FUNDING




A
substantial portion of fiscal year ended December 31, 2009 was dedicated to
financing and identification of a potential drilling partner and merger
candidate. Financing partners were sought with the intent of conducting a
private placement to raise funds for both finalizing the mineral lease
acquisition in Mississippi and participation in the drilling of a well on those
lands. As of the date of this Annual Report, management fully anticipates that
the Merger Agreement will be consummated and the merger transaction effected. In
the event the Merger Agreement is not consummated, possible further advances and
the sale of would be required to fund our operations over the next six months.
We have no lines of credit or other bank financing arrangements. Generally, we
have financed operations to date through the proceeds of the private placement
of equity and debt instruments. In the event the Merger Agreement is not
consummated and in connection with our future business plan, management
anticipates additional increases in operating expenses and capital expenditures
relating to: (i) possible drilling initiatives on current Lease and future
properties; and (iii) future property acquisitions. We would finance these
expenses with further issuances of securities and debt issuances, with the
additional possibility of financing from the cash payment provided by











39





Avere
should this farm-in agreement become finalized. Within this agreement Avere
Energy will pay 20% of the total well costs (which is 100% of our capital
commitment) to permit them to earn a 20% net interest in the Mississippi
Project, which is 40.81% of our working interest (the “Avere Energy Earned
Interest’). Simultaneously with execution of the Amended Letter of Intent, Avere
Energy paid a $75,000 non-refundable deposit, which may be used by us in our
sole discretion. At closing, Avere Energy shall make a final payment to us in
the amount of $1,925,000, subject to TSX Venture Exchange approval. Thereafter,
we expect we would need to raise additional capital and generate revenues to
meet long-term operating requirements. Additional issuances of equity or
convertible debt securities would result in dilution to our current
shareholders. Further, such securities may have rights, preferences or
privileges senior to our common stock. Additional financing may not be available
upon acceptable terms, or at all.




In the
even the Merger Agreement is not consummated and if adequate funds were not
available or were not available on acceptable terms, we may not be able to
take advantage of prospective new business endeavors or opportunities, which
could significantly and materially restrict our business
operations.




Private
Placements





As of the
date of this Annual Report, we completed private placements under Regulation S
for proceeds of $885,000 in 2009 and $125,000 in 2010.  The proceeds were
largely directed towards expanding investor awareness and increasing liquidity
in the stock. Historically, our financing has been burdened with concerns that
our stock was largely illiquid and therefore a campaign was undertaken to
address this concern. Most of this effort was stewarded by Media Plan, an
affiliate of Stockhouse Inc., who specializes in the distribution of corporate
materials to investment groups and various investment relations providers.
Materials were targeted to those investors who were interested in small cap
corporations within the oil and gas sector. Many of the initial shareholders
both encouraged and funded this campaign via private placement from key
shareholders. The results of this campaign saw both an increase in the
shareholder base as well as an increase in share price as additional interest
grew in the technical story of the company. Both North American and European
investors were targeted during this effort to broaden awareness of American
Exploration and it’s Haynesville Shale activity. As part of this awareness
campaign, our website was translated into German.





MATERIAL
COMMITMENTS





Promissory
Notes





A future
material commitment during fiscal year 2010 relates to those certain unsecured
promissory notes entered into by us as follows (i) May 15, 2009 in the amount of
$30,000 with a related party; (ii) May 29, 2009 in the amount of $7,809 with a
related party; and (iii) June 5, 2009 in the amount of $50,000 with one of our
directors.





As of
August 16, 2009, we entered into promissory notes with the respective creditor
(collectively, the “Note”), which evidences the debt and is payable upon demand
and accrues interest at 10% per annum.
















Debenture





Effective
on October 13, 2009, our Board of Directors authorized the execution of a 5%
convertible debenture in the principal amount of $95,227 (the “Debenture”) with
DMS Ltd. (“DMS”).  In accordance with the terms and provisions of the
Debenture: (i) accrues interest at the rate of 5% per annum; (ii) the maturity
date for repayment is the earlier of: (a) that date when we are able to meet the
insolvency test (i.e., when we have sufficient funds in our cash account to meet
our obligations as they arise on a daily basis, which shall be determined by
management in good faith); or (b) January 13, 2010; and (iii) DMS has the right
at any time to convert the unpaid principal amount of the Debenture into shares
of our common stock at the price of $0.50 per share. The conditions above were
not met and the note may be deemed in default.





PURCHASE
OF SIGNIFICANT EQUIPMENT





We do not
intend to purchase any significant equipment during the next twelve
months.





OFF-BALANCE
SHEET ARRANGEMENTS





As of the
date of this Annual Report, we do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors.





GOING
CONCERN





The
independent auditors' report accompanying our December 31, 2009 and December 31,
2008 financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.We
have suffered recurring losses from operations and have a working capital
deficit. These factors raise substantial doubt about our ability to continue as
a going concern.




RECENT
ACCOUNTING PRONOUNCEMENTS






In June 2009, the FASB issued SFAS No.
168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles (“SFAS 168” or ASC 105-10). SFAS 168 (ASC 105-10) establishes
the Codification as the sole source of authoritative accounting principles
recognized by the FASB to be applied by all nongovernmental entities in the
preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105
10) was prospectively effective for financial statements issued for fiscal years
ending on or after September 15, 2009, and interim periods within those fiscal
years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact our
results of operations or financial condition. The Codification did not change
GAAP; however, it did change the way GAAP is organized and presented. As a
result, these changes impact how companies reference GAAP in their financial
statements and in their significant accounting policies.

















In June
2008, the FASB issued FSP EITF 03-6-1 (ASC 260-10), Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF 03-6-1” or ASC 260-10). FSP EITF 03-6-1 (ASC 260-10) addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
computing earnings per share under the two-class method described in SFAS No.
128 (ASC 260-10), Earnings Per Share. FSP EITF 03-6-1(ASC 260-10) is effective
for the Company as of January 1, 2009 and in accordance with its requirements it
will be applied retrospectively. The adoption of FSP EITF 03-6-1 (ASC 260-10)
did not have a material impact on the Company’s consolidated financial
statements.






On
December 31, 2008, the Securities and Exchange Commission (“SEC”) published the
final rules and interpretations updating its oil and gas reporting requirements.
Many of the revisions are updates to definitions in the existing oil and gas
rules to make them consistent with the petroleum resource management system,
which is a widely accepted standard for the management of petroleum resources
that was developed by several industry organizations. In October 2009, the SEC
issued Staff Accounting Bulletin No. 113 (SAB No. 113), effective November 4,
2009, revising Staff Accounting Bulletin Series Topic 12 Oil and Gas Producing
Activities primarily to conform Topic 12 to the aforementioned SEC updates to
its oil and gas reporting requirements. Key changes to the SEC’s rules and
interpretations include a requirement to use 12-month average pricing rather
than year-end pricing for estimating proved reserves, the ability to include
nontraditional resources in reserves, the ability to use new technology for
determining proved reserves, and permitting disclosure (outside of the financial
statements) of probable and possible reserves. The full-cost accounting method,
which the Company follows, is changed to no longer allow the option of ceiling
test impairments being reduced or eliminated by consideration of oil and gas
price increases occurring subsequent to the impairment date. The FASB aligned
ASC Topic 932, with the aforementioned SEC requirements by issuing ASC Update
2010-03. The new SEC and FASB authoritative guidance became effective for the
Company’s 2009 Annual Report on Form 10-K and has been prospectively adopted as
of December 31, 2009. The new authoritative guidance did not have a material
impact on the Company’s consolidated financial statements.

























ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA






REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM DATED APRIL 13,
2010.






BALANCE
SHEETS AS AT DECEMBER 31, 2009 AND DECEMBER 31, 2008.






STATEMENTS
OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008 AND
FOR THE PERIOD FROM INCEPTION (MAY 11, 2006) TO DECEMBER 31, 2009.






STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (MAY 11, 2006)
TO DECEMBER 31, 2009.






STATEMENTS
OF CASH FLOWS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008
AND FOR THE PERIOD FROM INCEPTION (MAY 11, 2006) TO DECEMBER 31,
2009.






NOTES
TO FINANCIAL STATEMENTS.








































REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the
Shareholders and Board of Directors


American
Exploration Corporation (f.k.a. Minhas Energy Consultants, Inc.)


(An
Exploration Stage Company)


Calgary,
Canada





We have
audited the accompanying balance sheets of American Exploration Corporation
(f.k.a. Minhas Energy Consultants, Inc.) (An Exploration Stage Company) as of
December 31, 2009 and 2008, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 2009, 2008
and for the period from inception (May 11, 2006) to December 31, 2009. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.  The financial statements for the period from May 11, 2006
(inception) to December 31, 2007, were audited by other auditors and our
opinion, insofar as it relates to cumulative amounts included for such periods,
is based solely on the reports of other auditors.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of American Exploration Corporation as
of December 31, 2009 and 2008, and the results of its operations, and its cash
flows for the years ended December 31, 2009 and 2008 and for the period from
inception (May 11, 2006) to December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company has suffered recurring losses from operations and has a
working capital deficit. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also discussed in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.








/s/ GBH
CPAs, PC





GBH CPAs,
PC


www.gbhcpas.com


Houston,
Texas





April 13,
2010















AMERICAN
EXPLORATION CORPORATION


(f.k.a.
Minhas Energy Consultants, Inc.)


(An
Exploration Stage Company)


BALANCE
SHEETS








December
      31, 2009
            
            
            December
      31, 2008(Restated)ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            9,560
            
            
            $
            159,525Total
      Current Assets
            
            
            9,560
            
            
            
            159,525Oil
      and gas properties – unevaluated, not subject to
    amortization
            
            
            3,771,001
            
            
            
            781,250Website,
      net of amortization
            
            
            6,392
            
            
            
            9,725Total
      Assets
            
            $
            3,786,953
            
            
            $
            950,500LIABILITIES
      & STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
            
            $
            32,500
            
            
            $
            17,553Accounts
      payable - related parties
            
            
            5,422
            
            
            
            -Short
      term notes payable – related parties
            
            
            87,809
            
            
            
            5,000Convertible
      notes – related parties
            
            
            95,227
            
            
            
            -Total
      Current Liabilities
            
            
            220,958
            
            
            
            22,553Commitments
      and contingencies
            
            
            -
            
            
            
            -Stockholders’
      EquityCommon
      stock, $0.001 par value, 150,000,000 shares authorized:59,773,333
      and 137,475,000 shares issued and outstanding,
respectively
            
            
            59,773
            
            
            
            137,475Additional
      paid in capital
            
            
            5,577,683
            
            
            
            965,775Accumulated
      deficit during exploration stage
            
            
            (2,071,461
            )
            
            
            (175,303
            )Total
      Stockholders’ Equity
            
            
            3,565,995
            
            
            
            927,947Total
      Liabilities and Stockholders’ Equity
            
            $
            3,786,953
            
            
            $
            950,500





The
accompanying notes are an integral part of these financial
statements.



















AMERICAN
EXPLORATION CORPORATION


(f.k.a.
Minhas Energy Consultants, Inc.)


(An
Exploration Stage Company)


STATEMENTS
OF OPERATIONS


For the
years ended December 31, 2009 and 2008


and for
the Period from Inception (May 11, 2006) to December 31, 2009








For
      the year endedDecember
      31, 2009
            
            
            December
      31, 2008
            
            
            Inception (May
      11, 2006) to
              December
      31, 2009(Restated)Revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
      ExpensesGeneral
      and administrative
            
            
            1,831,173
            
            
            
            104,328
            
            
            
            2,003,763Depreciation
      and amortization
            
            
            3,333
            
            
            
            681
            
            
            
            4,885Total
      Operating Expenses
            
            
            1,834,506
            
            
            
            105,009
            
            
            
            2,008,648Loss
      from operations
            
            
            (1,834,506
            )
            
            
            (105,009
            )
            
            
            (2,008,648
            )Other
      income (expense)Interest
      expense
            
            
            (61,652
            )
            
            
            -
            
            
            
            (61,652
            )Loss
      on sale of assets
            
            
            -
            
            
            
            (1,161
            )
            
            
            (1,161
            )Total
      other expense
            
            
            (61,652
            )
            
            
            (1,161
            )
            
            
            (62,813
            )Net
      loss
            
            $
            (1,896,158
            )
            
            $
            (106,170
            )
            
            $
            (2,071,461
            )Net
      loss per common share - basic and diluted
            
            $
            (0.02
            )
            
            $
            (0.00
            )Weighted
      average common shares - basic and diluted
            
            
            76,873,982
            
            
            
            136,149,658





The
accompanying notes are an integral part of these financial
statements.





























AMERICAN
EXPLORATION CORPORATION


(f.k.a.
Minhas Energy Consultants, Inc.)


(An
Exploration Stage Company)


STATEMENT
OF CHANGES IN STOCKHOLDERS’ EQUITY


For the
Period from Inception (May 11, 2006) to December 31, 2009





DeficitAccumulatedAdditional
            
            
            During
      the
            
            
            TotalCommon Stock
            
            
            Paid
      in
            
            
            Exploration
            
            
            Stockholders’Shares
            
            
            Amount
            
            
            Capital
            
            
            Stage
            
            
            EquityBalance
      at inception on May 11, 2006
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Initial
      capitalization, sale ofof
      common stock to directors onMay
      11,2006 $0.00005/share
            
            
            94,500,000
            
            
            
            94,500
            
            
            
            (90,000
            )
            
            
            -
            
            
            
            4,500Private
      Placement - September 30,at
      0.0024/share
            
            
            41,475,000
            
            
            
            41,475
            
            
            
            57,275
            
            
            
            -
            
            
            
            98,750Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (9,055
            )
            
            
            (9,055
            )Balance,
      December 31, 2006
            
            
            135,975,000
            
            
            
            135,975
            
            
            
            (32,725
            )
            
            
            (9,055
            )
            
            
            94,195Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (60,078
            )
            
            
            (60,078
            )Balance,
      December 31, 2007
            
            
            135,975,000
            
            
            
            135,975
            
            
            
            (32,725
            )
            
            
            (69,133
            )
            
            
            34,117Private
      Placement- November 19,2008
      at $0.692/share
            
            
            1,350,000
            
            
            
            1,350
            
            
            
            898,650
            
            
            
            -
            
            
            
            900,000Private
      Placement - November 24,2008
      at $0.689/share
            
            
            150,000
            
            
            
            150
            
            
            
            99,850
            
            
            
            -
            
            
            
            100,000Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (106,170
            )
            
            
            (106,170
            )Balance
      December 31, 2008
            
            
            137,475,000
            
            
            
            137,475
            
            
            
            965,775
            
            
            
            (175,303
            )
            
            
            927,947Private
      Placement - February 2009at
      $0.667/share
            
            
            487,500
            
            
            
            488
            
            
            
            324,512
            
            
            
            -
            
            
            
            325,000Forgiven
      loan from director
            
            
            -
            
            
            
            -
            
            
            
            5,000
            
            
            
            -
            
            
            
            5,000Cancellation
      of shares
            
            
            (83,100,000
            )
            
            
            (83,100
            )
            
            
            83,100
            
            
            
            -
            
            
            
            -Shares
      issued for oil and  gas lease -August
      2009 at $0.66/share
            
            
            4,037,500
            
            
            
            4,037
            
            
            
            2,660,713
            
            
            
            -
            
            
            
            2,664,750Private
      Placements – August 2009at
      $0.50/share
            
            
            660,000
            
            
            
            660
            
            
            
            329,340
            
            
            
            
            
            
            
            330,000Private
      Placements – September 2009at
      $0.75 and $1.00/share
            
            
            158,333
            
            
            
            158
            
            
            
            124,842
            
            
            
            -
            
            
            
            125,000Private
      Placement - October 2009at
      $1.00/share
            
            
            55,000
            
            
            
            55
            
            
            
            54,945
            
            
            
            -
            
            
            
            55,000Amortization
      of share-basedcompensation
            
            
            -
            
            
            
            -
            
            
            
            968,511
            
            
            
            -
            
            
            
            968,511Discount
      on convertible debt
            
            
            -
            
            
            
            -
            
            
            
            60,945
            
            
            
            -
            
            
            
            60,945Net  Loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,896,158
            )
            
            
            (1,896,158
            )Balance,
      December 31, 2009
            
            
            59,773,333
            
            
            $
            59,773
            
            
            $
            5,577,683
            
            
            $
            (2,071,461
            )
            
            $
            3,565,995





The
accompanying notes are an integral part of these financial
statements.











AMERICAN
EXPLORATION CORPORATION


(f.k.a.
Minhas Energy Consultants, Inc.)


(An
Exploration Stage Company)


STATEMENTS
OF CASH FLOWS


For the
Years Ended December 31, 2009 and 2008


and For
the Period from Inception (May 11, 2006) to December 31, 2009








For
      the year ended
            
            
            Inception
      (May 11, 2006) toDecember
      31, 2009
            
            
            December
      31, 2008
            
            
            December
      31, 2009(Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (1,896,158
            )
            
            $
            (106,170
            )
            
            $
            (2,071,461
            )Adjustments
      to reconcile net loss to cash used by operating
activities:Depreciation
      and amortization expense
            
            
            3,333
            
            
            
            681
            
            
            
            4,885Amortization
      of debt discount
            
            
            60,945
            
            
            
            -
            
            
            
            60,945Share-based
      compensation
            
            
            968,511
            
            
            
            -
            
            
            
            968,511Loss
      on sale of assets
            
            
            -
            
            
            
            1,161
            
            
            
            1,161Changes
      in operating assets and liabilities:Accounts
      payable and accrued liabilities
            
            
            14,948
            
            
            
            14,553
            
            
            
            32,363Accounts
      payable - related parties
            
            
            5,421
            
            
            
            -
            
            
            
            5,421Net
      cash used in operating activities
            
            
            (843,000
            )
            
            
            (89,775
            )
            
            
            (998,175
            )CASH
      FLOWS FROM INVESTING ACTIVITIESWebsite
            
            
            -
            
            
            
            (10,000
            )
            
            
            (10,000
            )Acquisition
      of unproved oil and gas properties
            
            
            (325,001
            )
            
            
            (781,250
            )
            
            
            (1,108,551
            )Net
      cash used in investing activities
            
            
            (325,001
            )
            
            
            (791,250
            )
            
            
            (1,118,551
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock and warrants
            
            
            835,000
            
            
            
            1,000,000
            
            
            
            1,938,250Proceeds
      from notes payable - related parties
            
            
            87,809
            
            
            
            5,000
            
            
            
            92,809Proceeds
      from issuance of convertible debt - related parties
            
            
            95,227
            
            
            
            -
            
            
            
            95,227Net
      cash provided by financing activities
            
            
            1,018,036
            
            
            
            1,005,000
            
            
            
            2,126,286(Decrease)
      increase in cash during the period
            
            
            (149,965
            )
            
            
            123,975
            
            
            
            9,560Cash,
      beginning of the period
            
            
            159,525
            
            
            
            35,550
            
            
            
            -Cash,
      end of the period
            
            $
            9,560
            
            
            $
            159,525
            
            
            $
            9,560Supplemental
      cash flow information:Taxes
      paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -Interest
      paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -NON-CASH
      TRANSACTIONSCommon
      stock issued for oil and gas property
            
            $
            2,664,750
            
            
            $
            -
            
            
            $
            2,664,750Cancellation
      of  loan from director
            
            $
            5,000
            
            
            $
            -
            
            
            $
            5,000Cancellation
      of shares
            
            $
            83,100
            
            
            $
            -
            
            
            $
            83,100








The
accompanying notes are an integral part of these financial
statements.












AMERICAN
EXPLORATION CORPORATION


(f.k.a.
Minhas Energy Consultants, Inc.)


(An
Exploration Stage Company)


NOTES TO
FINANCIAL STATEMENTS







NOTE 1. GENERAL ORGANIZATION
AND BUSINESS





The
Company was originally incorporated under the laws of the state of Nevada on May
11, 2006. The Company has limited operations and is considered an exploration
stage company, and has had no revenues from operations to date.





Initial
operations have included capital formation, organization, target market
identification and marketing plans. On August 6, 2008 the Company merged with
its wholly-owned subsidiary and changed its name to American Exploration
Corporation.  Concurrent with the name change, management changed the
focus of operations from the provision of consulting engineering services to oil
and gas exploration and development.





Basis
of Presentation





In the
opinion of management, the accompanying balance sheets and related statements of
income and cash flows include all adjustments, consisting of normal recurring
items, necessary for their fair presentation in conformity with accounting
principles generally accepted in the United States of America ("U.S.
GAAP").





On August
18, 2008, the Company affected a 14 for 1 forward stock split of its issued and
outstanding par value $0.001 common shares.  On April 13, 2009 a 1.5:1
forward stock split took effect.  All share and per share amounts have
been adjusted to reflect the retroactive effect of these forward stock
splits.




NOTE  2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.





Reclassification





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





Loss
per Share





Pursuant
to FASB ASC Topic 260, Earnings Per Share, basic net loss per share is computed
by dividing the net income attributable to common shareholders by the
weighted-average number of common shares outstanding during the period. Diluted
net income per share is computed by dividing the net income attributable to
common shareholders by the weighted-average number of common and common
equivalent shares outstanding during the period. Common share equivalents
included in the diluted computation represent shares issuable upon assumed
exercise of stock options and warrants using the treasury stock and “if
converted” method. For periods in which net losses are incurred, weighted
average shares outstanding is the same for basic and diluted loss per share
calculations, as the inclusion of common share equivalents would have an
anti-dilutive effect.





For the
year ended December 31, 2009, options and warrants to purchase 2,700,000 and
652,916 shares of common stock, respectively, were excluded from the diluted
earnings per share calculation because their effect would have been
anti-dilutive.





Cash
and Cash Equivalents





The
Company considers all highly liquid investments with maturity of three months or
less when purchased to be cash equivalents.
















Concentrations
of Risks - Cash Balances





The
Company maintains its cash in institutions insured by the Canada Deposit
Insurance Corporation (CDIC) and Federal Deposit Insurance Corporation
(FDIC).  Both the FDIC and CDIC had insured limits of up to $250,000
per depositor as of December 31, 2009.





Oil
and Gas Properties, Full Cost Method





The
Company has elected to use the full cost method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells used to find proved reserves,
and to drill and equip development wells, including directly related overhead
costs and related asset retirement costs, are capitalized.





Under
this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs on a county by county basis. Properties not subject to
amortization consist of exploration and development costs which are evaluated on
a property-by-property basis. Amortization of these unproved property costs
begins when the properties become proved or their values become impaired. The
Company assesses the realizability of unproved properties, if any, on at least
an annual basis or when there has been an indication that impairment in value
may have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.





In
applying the full cost method, the Company performs an impairment test (ceiling
test) at each reporting date, whereby the carrying value of property and
equipment is compared to the “estimated present value,” of its proved reserves
discounted at a 10-percent interest rate of future net revenues, based on
current economic and operating conditions at the end of the period, plus the
cost of properties not being amortized, plus the lower of cost or fair market
value of unproved properties included in costs being amortized, less the income
tax effects related to book and tax basis differences of the properties. If
capitalized costs exceed this limit, the excess is charged as an impairment
expense.





As of
December 31, 2009 the Company had no proved properties and no impairment of
unevaluated oil and gas properties was indicated.





Foreign
exchange and currency translation





For the
periods presented, the Company maintained cash accounts in Canadian and U.S.
dollars, and incurred certain expenses denominated in Canadian
dollars.  The Company's functional and reporting currency is the U.S.
dollar. Transactions denominated in foreign currencies are translated into U.S.
dollars at exchange rates in effect on the date of the transactions. Assets and
liabilities are translated using exchange rates at the end of each period.
Exchange gains or losses on transactions are included in earnings. Adjustments
resulting from the translation process are reported in a separate component of
other comprehensive income and are not included in the determination of the
results of operations.  For all periods presented, any exchange gains
or losses or translation adjustments resulting from foreign currency
transactions were immaterial.





Recent
Accounting Pronouncements





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles(“SFAS 168” or ASC 105-10). SFAS 168 (ASC 105-10) establishes the
Codification as the sole source of authoritativeaccounting principles
recognized by the FASB to be applied by all nongovernmental entities in the
preparation of financial statements inconformity with GAAP.
SFAS 168 (ASC 105-10) was prospectively effective for financial statements
issued for fiscal years ending on or afterSeptember 15, 2009, and
interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10)
on July 1, 2009 did not impact











50





theCompany’s results of
operations or financial condition. The Codification did not change GAAP;
however, it did change the way GAAP isorganized and
presented. As a result, these changes impact how companies reference GAAP in
their financial statements and in their significantaccounting policies.
The Company implemented the Codification in this Report by providing references
to the Codification topics alongsidereferences to the
corresponding standards.





In June
2008, the FASB issued FSP EITF 03-6-1 (ASC 260-10), Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities(“FSP EITF 03-6-1” or ASC 260-10). FSP EITF 03-6-1 (ASC 260-10) addresses
whetherinstruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included incomputing earnings per
share under the two-class method described in SFAS No. 128 (ASC 260-10), Earnings Per Share. FSP EITF
03-6-1(ASC
260-10) is effective for the Company as of January 1, 2009 and in accordance
with its requirements it will be applied retrospectively. Theadoption of FSP EITF
03-6-1 (ASC 260-10) did not have a material impact on the Company’s financial
statements.





On
December 31, 2008, the Securities and Exchange Commission (“SEC”) published the
final rules and interpretations updating its oil and gas reporting requirements.
Many of the revisions are updates to definitions in the existing oil and gas
rules to make them consistent with the petroleum resource management system,
which is a widely accepted standard for the management of petroleum resources
that was developed by several industry organizations.  In October
2009, the SEC issued Staff Accounting Bulletin No. 113 (SAB No. 113), effective
November 4, 2009, revising Staff Accounting Bulletin Series Topic 12 Oil and Gas
Producing Activities primarily to conform Topic 12 to the aforementioned SEC
updates to its oil and gas reporting requirements. Key changes to the SEC’s
rules and interpretations include a requirement to use 12-month average pricing
rather than year-end pricing for estimating proved reserves, the ability to
include nontraditional resources in reserves, the ability to use new technology
for determining proved reserves, and permitting disclosure (outside of the
financial statements) of probable and possible reserves. The full-cost
accounting method, which the Company follows, is changed to no longer allow the
option of ceiling test impairments being reduced or eliminated by consideration
of oil and gas price increases occurring subsequent to the impairment date. The
FASB aligned ASC Topic 932, with the aforementioned SEC requirements by issuing
ASC Update 2010-03. The new SEC and FASB authoritative guidance became effective
for the Company’s 2009 Annual Report on Form 10-K and has been prospectively
adopted as of December 31, 2009. The new authoritative guidance did not have a
material impact on the Company’s consolidated financial statements.





Other
recently issued or adopted accounting pronouncements are not expected to, or did
not have, a material effect on the Company’s operations or financial
position.




NOTE 3. GOING
CONCERN





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has incurred net losses for the period from inception to
December 31, 2009 of $2,071,461. The Company intends to fund initial operations
through equity financing arrangements and current efforts are further described
in Note 7.





The
ability of the Company to emerge from the exploration stage is dependent upon
the Company’s successful efforts to raise sufficient capital and then attain
profitable operations.  In response to these problems, management has
planned or completed the following actions:





•
            The
      Company has completed a Registration Statement and obtained a trading
      symbol for its common shares on the OTCBB.





•
            Management
      intends to raise additional funds through public or private equity or debt
      offerings.





•
            Management
      has changed the focus of the Company’s operations to oil and gas
      exploration and development from the provision of engineering services.
      There can be no assurances, however, that management’s expectations of
      future revenues will be realized.



















NOTE 4. STOCKHOLDERS’
EQUITY





Common
Stock - Issued and Outstanding





On May
11, 2006 (inception), the Company issued 94,500,000 shares of its common stock
to its Directors for cash of $4,500.  On September 30, 2006, the
Company closed a private placement for 41,475,000 common shares for an aggregate
of $98,750.





On
November 19th and
24th of
2008, the Company closed two private placements for 1,350,000 and 150,000 shares
respectively, at a price of $0.67 per share, for a total of $1,000,000. Included
with each share in these private placements was one-half non-transferable share
purchase warrant, for a total of 750,000 warrants with a fair value on the date
of grant of $26,012.  Each warrant had a term of 12 months and
entitled the subscriber to purchase one additional share of the company at an
exercise price of $1.33 per share.  These warrants expired without
exercise during 2009.





In
February 2009, the Company completed two private placements for 487,500 shares
for a total of $325,000, or $0.67 per share.  Included with each share
in these private placements was one-half non-transferable share purchase
warrant, for a total of 243,750 warrants with a fair value on the date of grant
of $48,716.  Each warrant has a term of 12 months and entitles the
subscriber to purchase one additional share of the Company’s stock at an
exercise price of $1.33 per share.





On March
21, 2009 our prior executive officers and founders agreed to return an aggregate
83,100,000 shares of our common stock to the Company.  They did not
receive any compensation for the return to and cancellation of these shares by
the Company.





On August
19, 2009, 4,037,500 shares were issued to Westrock to acquire the balance of an
oil and gas lease (see Note 6).  These shares were valued at $0.66 per
share for a total of $2,664,750, based upon the Company’s share price on the
date of agreement.





On August
17, 2009, a private placement closed for 400,000 shares at $0.50 per share or
$200,000.  On August 31, 2009, a private placement closed, for 260,000
shares at $0.50 per share or $130,000.  On September 21, 2009, a
private placement closed for 133,333 shares at $0.75 per share, or
$100,000.  On September 25, 2009, a private placement closed for
25,000 shares at $1.00.  Included with each share in these private
placements was one-half non-transferable share purchase warrant for a total of
409,166 warrants with an exercise term of 12 months and a fair value on the
grant date of $356,761.  The warrants have exercise prices ranging
from $0.50 to $1.50.





On
October 8, 2009 a private placement closed for 55,000 shares at $1.00 per share,
or a total of $55,000, with no warrants attached.





Stock
Options





In
September 2009, the Company adopted the 2009 Stock Option Plan (“2009
Plan”).  The 2009 Plan allows the Company to issue options to
officers, directors and employees, as well as consultants, to purchase up to
7,000,000 shares of common stock.





During
September 2009, the following options were granted:





·
            1,000,000
      options to the Company’s Chief Executive Officer, who is also a director
      of the Company.


·
            1,150,000
      options to three directors of the
Company


·
            150,000
      options to the Company’s Chief Financial
Officer


·
            400,000
      options to three consultants to the
Company





All the
options granted have an exercise price of $0.80 per share and a 10 year
life.  With the exception of 50,000 options granted to a consultant
that vested immediately, one third of the options granted vested at the date of
grant, with the remainder vesting in equal parts in September 2012 and September
2015.
















Fair
value of the options granted was $2,559,954, or $0.95 per share, and was
calculated in accordance with the Black-Sholes valuation model based on the
following assumptions:  (a) risk free interest rate 3.47%, (b)
expected volatility of 192.35% (c) expected life of 5.75 years, and (d) zero
expected future dividends.  The options qualify as ‘plain vanilla’
under the accounting literature and therefore, the expected life has been
calculated pursuant to the provisions of Staff Accounting Bulletin No.
107.  The Company recognized stock based compensation expense of
$968,511 related to these option issuances during the year ended December 31,
2009.  .





A summary
of stock option activity and related information for the years ended December
31, 2008 and 2009 is presented below:


Options
            
            
            Weighted-Average
      Exercise Price
            
            
            Aggregate
      Intrinsic ValueOutstanding
      at January 1, 2008
            -
            
            $
            -
            
            $
            -Granted
            -
            
            
            -
            
            
            -Exercised
            -
            
            
            -
            
            
            -Forfeited
            -
            
            
            -
            
            
            -Outstanding
      at December 31, 2008
            -
            
            $
            -
            
            $
            -Granted
            2,700,000
            
            
            0.80
            
            
            -Exercised
            -
            
            
            -
            
            
            -Forfeited
            -
            
            
            -
            
            
            -Outstanding
      at December 31, 2009
            2,700,000
            
            $
            0.80
            
            $
            -Exercisable
      at December 31, 2009
            998,214
            
            $
            0.80
            
            $
            -








As of
December 31, 2009, total unrecognized stock-based compensation expense related
to non-vested stock options was $1,591,443.  The unrecognized stock
based compensation is expected to be ratably amortized to expense over a period
of 4.75 years. The weighted average remaining contractual term of the
outstanding options and exercisable options at December 31, 2009 is
approximately 9.75 years.  Options exercisable at December 31, 2009
totaled 933,332.  All options outstanding had no intrinsic value at
December 31, 2009.





Warrants





A summary
of warrant activity and related information for the years ended December 31,
2008 and 2009 is presented below:


Warrants
            
            
            Weighted-Average
      Exercise Price
            
            
            Aggregate
      Intrinsic ValueOutstanding
      at January 1, 2008
            -
            
            $
            -
            
            $
            -Granted
            750,000
            
            
            1.33
            
            
            -Exercised
            -
            
            
            -
            
            
            -Forfeited
            -
            
            
            -
            
            
            -Outstanding
      at December 31, 2008
            750,000
            
            
            1.33
            
            
            -Granted
            652,916
            
            
            1.01
            
            
            -Exercised
            -
            
            
            -
            
            
            -Forfeited
            (750,000)
            
            
            1.33
            
            
            -Outstanding
      and exercisable at December 31, 2009
            652,916
            
            $
            1.01
            
            $
            30,000





At
December 31, 2009, the Company had 652,916 warrants outstanding with a remaining
weighted average contractual life of nine months.  The weighted
average exercise price for all remaining outstanding warrants was
$1.01.  Outstanding warrants had an aggregate fair market value of
$405,477 at the date of grant, which was calculated in accordance with the
Black-Sholes valuation model based on the following assumptions:  (a)
risk free interest rate 3.5%, (b) expected volatility of 192.35% (c) expected
life of 1 year, and (d) zero expected future dividends.





Other
Capital Transactions





On
January 1, 2009, a $5,000 advance payable to a director of the Company and
outstanding as of December 31, 2008, was forgiven and recorded as a contribution
to capital.
















NOTE 5. RELATED PARTY
TRANSACTIONS





On
January 1, 2009, a $5,000 advance payable to a director of the Company and
outstanding as of December 31, 2008, was forgiven and recorded as a contribution
to capital.





During
the second quarter of 2009, directors of the Company loaned a total of $87,809
to cover operating expenses of the Company.  Interest of 10% per annum
will be paid to the lenders beginning July 1, 2009 and the loans are due upon
demand.  All of these loans are unsecured and, as of December 31,
2009, the Company had not received a demand from any of the lenders for
payment.





A 5%
unsecured convertible debenture, due January 13, 2010, was also issued by the
Company to a related party on October 13, 2009 for CDN$100,000 (USD
95,227).  The unpaid principal amount can be converted into common
stock at the price of $0.50 per share.  Management assessed the
convertible note pursuant to ASC 470 - Debt and determined that
the convertible note had a beneficial conversion feature that resulted in a debt
discount of $60,945.  The terms of convertible note allow for the
holder to convert principal and interest at any time into common
shares.  Therefore, pursuant to ASC 470, the Company immediately
expensed as interest expense the debt discount of $60,945 related to the
convertible note.  The convertible note was not redeemed at the
maturity date and is currently in default.





NOTE
6.  UNEVALUATED OIL AND GAS PROPERTIES





In  November
2008,  the Company executed an
option  agreement  (the "Option  Agreement") to
purchase a 75% net  revenue  interest  (100%
working interest) in approximately  5,000 net acres in oil and
gas  leases  located in Mississippi in the onshore region of
the Gulf Coast of the United States.  The purchase price was $625 per
net acre or a total of $3,125,000.  The Option Agreement required that
a well be spud no later than May 31, 2009 and provided the Company until
November 17, 2008 to complete its due diligence (the "Option
Period").  The Company made a payment of $781,250 upon execution of
the Option Agreement.





The
Option Agreement was amended a number of times to extend the Option Period and
through August 2009, the Company made additional cash payments totaling $325,000
to the counterparty.





On August
19, 2009, the Company entered into a final amendment to the Option Agreement
whereby the Company (i) agreed to issue 4,037,500 shares of its restricted
common stock as satisfaction for the remaining balance due under the Option
Agreement, and (ii) agreed to drill and complete a minimum of at least one well
on the properties in the Haynesville geological zone no later than December 31,
2010.




The
4,037,500 shares issued to satisfy the remaining purchase price were valued at
$2,664,750, based upon the Company’s share price on the date of agreement,
bringing the total acquisition price to $3,771,001.  The properties
acquired have no proved reserves and therefore, have been classified as
unevaluated in the accompanying financial statements.




NOTE 7.  INCOME
TAXES





Deferred
income taxes are provided on a liability method whereby deferred tax assets and
liabilities are established for the difference between the financial reporting
and income tax basis of assets and liabilities as well as operating loss and tax
credit carry forwards. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.





Realization
of deferred tax assets is dependent upon sufficient future taxable income during
the period that deductible temporary differences and carry-forwards are expected
to be available to reduce taxable income. At December 31, 2009 the Company has
recorded a 100% valuation allowance as management believes it is likely that any
deferred tax assets will not be realized.





As of
December 31, 2009, the Company has a net operating loss carry forward of
$2,071,461 which will expire between years 2026 and 2029.
















NOTE 8. SUBSEQUENT
EVENTS





Avere
Energy Inc. Farm-In Agreement




Effective
on January 15, 2010, we executed a letter of intent with Avere Energy Inc., a
Canadian corporation (“Avere Energy”), regarding our Mississippi project. On
March 1, 2010, the letter of intent with Avere Energy was amended (the “Amended
Letter of Intent”).






Pursuant
to the Amended Letter of Intent, Avere Energy will enter into a definitive
farm-in agreement with us whereby Avere will farm-in on our interest in the
Mississippi Project by paying 20% of the total well costs (which is 100% of our
capital commitment) to earn a 20% net interest in the Mississippi Project, which
is 40.81% of our working interest (the “Earned Interest’). On January 27, 2010,
pursuant to the Amended Letter of Intent, Avere Energy paid to us a $75,000
non-refundable deposit, which may be used by us in our sole discretion. At
closing, Avere Energy shall make a final payment to us in the amount of
$1,925,000, subject to TSX Venture Exchange approval. Any additional mineral
leases acquired within the Mississippi Project area will be offered to Avere
Energy at a 20% working interest once Avere Energy has acquired its Earned
Interest.






The
definitive farm-in agreement and closing of the transactions contemplated
thereunder are anticipated to close sometime during the second quarter of 2010,
subject to the following conditions: (i) execution of a definitive farm-in
agreement; (ii) completion of a financing by Avere Energy to raise sufficient
funds as described above for the farm-in; and (iii) receipt of the approval of
the shareholders of Avere Energy and of the TSX Venture Exchange to the
farm-in.




Mainland
Resources, Inc. Merger Agreement





On March
22, 2010, our Board of Directors authorized and approved the execution of a
definitive merger agreement and plan of merger (the “Merger Agreement”) with
Mainland Resources, Inc., a Nevada corporation (“Mainland Resources”). The
Merger Agreement provides for a stock-for-stock merger to be effected under the
laws of the State of Nevada whereby it is contemplated that our shareholders
will receive one share of restricted common stock of Mainland Resources for
every four shares of our common stock held of record. The specific share
exchange ratio will be negotiated following the completion of “fairness
opinions” conducted by independent financial advisors and technical due
diligence by both Mainland and us. As of the date of this Annual Report, there
are 60,273,333 shares of our common stock issued and outstanding with the result
that approximately 15,068,333 shares of Mainland Resources common stock will be
issued to our shareholders upon consummation and completion of the Merger
Agreement. In the event the Merger Agreement is consummated and the merger is
completed: (i) Mainland Resources will be the surviving corporation; (ii)
Mainland Resources will be vested with all of our assets and property (as
discussed below); and (iii) our shareholders will hold approximately twenty
percent (20%) of the total issued and outstanding shares of common stock of
Mainland Resources.





As of the
date of this Annual Report, the Merger Agreement is subject to various
conditions precedent including, but not limited to, the following: (i) approval
by our shareholders and the shareholders of Mainland Resources of the Merger
Agreement; (ii) completion of satisfactory due diligence by both us and Mainland
Resources by April 21, 2010; (iii) the number of Mainland Resources’
shareholders exercising dissenter rights available to them under Nevada law
cannot not exceed 5% of the total issued and outstanding shares of Mainland
Resources common stock; (iv) receipt by us and Mainland Resources of a
satisfactory draft fairness opinion; (v) the acceptance and approval of the
fairness opinion by our Board of Directors and the board of directors of
Mainland Resources, respectively; and (vi) confirmation of the accuracy and
material compliance of our representations, warranties and covenants and those
representations, warranties and covenants of Mainland Resources.





2010
Private Placements
 
 Two private placements were completed in 2010. The first
for 300,000 shares at $0.25 per share or $75,000 was completed on February
24th.
The investor also received 150,000 warrants with an exercise price of $0.50 per
share and a term of one year.
  A second private placement of 200,000 shares at $0.25 per
share or $50,000 was completed on April 5, 2010. The investor also received
100,000 warrants with an exercise price of $0.50 per share and a term of one
year.


The
Company evaluated subsequent events through April 13, which is the date the
financial statements were issued and there were no other significant subsequent
events to report.



















NOTE 9. RESTATED FINANCIAL
STATEMENTS





This
Annual Report on Form 10-K for the year ended December 31, 2009 of American
Exploration Corporation. ("the Company") includes the re-audited financial
statements of the Company for the year ended December 31, 2008. On August 27,
2009, the PCAOB revoked the registration of the Company’s prior auditors Moore
& Associates Chartered. The Company was notified by the SEC that a due to
the revocation, a re-audit of the Company’s financial statements for the year
ended December 31, 2008 would be required.





The
Company has identified material errors in its previously issued financial
statements. These misstatements require that the financial statements for the
fiscal year ended December 31, 2008 be restated.





Below is
a summary of the changes made to the financial statements previously filed for
the period ended December 31, 2008:


December
      31, 2008
            
            As Originally
              Reported
            
            
            Adjustments
            
            
            As RestatedCash
      and cash equivalents
            
            $
            160,832
            
            
            
            (1,307
            )  [1]
            
            $
            159,525Accounts
      payable and accrued liabilities
            
            
            (8,417
            )
            
            
            (9,116
            )  [2]
            
            
            (17,533
            )Common
      stock
            
            
            (90,650
            )
            
            
            (46,825
            )  [3]
            
            
            (137,475
            )Additional
      paid-in capital
            
            
            (12,600
            )
            
            
            (953,175
            )  [3]
            
            
            (965,775
            )Private
      Placement 1
            
            
            (100,000
            )
            
            
            100,000
            [3]
            
            
            -Private
      Placement 2
            
            
            (900,000
            )
            
            
            900,000
            [3]
            
            
            -Deficit
      accumulated during exploration stage
            
            
            164,861
            
            
            
            10,442
            
            
            
            175,303





TWELVE MONTHS ENDEDDecember
      31, 2008
            
            As Originally
              Reported
            
            
            Adjustments
            
            
            As RestatedGeneral
      and administrative
            
            $
            93,886
            
            
            
            10,442
            [2]
            
            $
            104,308Other
      income (Expense)
            
            
            1,161
            
            
            
            (1,161
            )
      [4]
            
            
            -Loss
      from Operations
            
            
            95,111
            
            
            
            9,281
            
            
            
            105,009Loss
      on sale of assets
            
            
            -
            
            
            
            1,161
            [4]
            
            
            1,161Net
      Loss
            
            
            95,111
            
            
            
            11,059
            
            
            
            106,170Net
      loss per common share
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )Weight
      average common shares outstanding
            
            
            91,650,000
            
            
            
            44,499,658
            [3]
            
            
            136,149,658





Adjustment
Entry Description for December 31, 2008





[1]
            To
      adjust cash for translation from Canadian to US
  Dollars.





[2]
            To
      accrue and expense additional liabilities incurred during 2008, but not
      recorded





[3]
            To
      reflect common stock sold in private placement in the appropriate equity
      accounts and to adjust common shares outstanding and related additional
      paid-in capital for 1.5 for 1 forward stock split effective April
      2009





[4]
            To
      reclassify loss on sale of assets from other income (expense) to proper
      line item.















ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE






There are
no disagreements with our current accountants on any matters related to
accounting and financial disclosure issues.  Our principal independent
registered public accounting firm is GBH, CPAs, PC. Their address is 24 Greenway
Plaza, Suite 1875, Houston TX, 77046 and telephone number is
713.629.8300.




MOORE
& ASSOCIATES, CHARTERED ACCOUNTANTS





Effective
August 11, 2009, we engaged Seale and Beers, CPAs (“S&B”) as our principal
independent registered public accounting firm. Concurrent with this appointment,
we accepted the resignation of Moore & Associates, Chartered Accountants
(“Moore”), effective August 10, 2009.  The decision to change our
principal independent registered public accounting firm has been approved by our
board of directors.





On August
27, 2009 the Public Company Accounting Oversight Board (the “PCAOB”) revoked the
registration of Moore due to: (i) violations of PCAOB rules and auditing
standards in auditing financial statements; (ii) violations of PCAOB rules and
quality controls standards; and (iii) violations of Section 10(b) of the
Securities Act of 1934 and Rule 10b-5 thereunder; and (iv) noncooperation with a
PCAOB investigation.





The
report of Moore on our financial statements for fiscal years ended December 31,
2008 and December 31, 2007 (which included the balance sheet as of December 31,
2008 and the statement of operations, cash flows and stockholders’ equity for
the period from May 11, 2006 (inception) through December 31, 2008), did not
contain an adverse opinion or disclaimer of opinion, nor was it modified as to
uncertainty, audit scope or accounting principles, other than to state that
there is substantial doubt as to our ability to continue as a going
concern.  During our fiscal year ended December 31, 2008, and during
the subsequent period through to the date of Moore’s resignation, there were no
disagreements between us and Moore, whether or not resolved, on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to the satisfaction of Moore, would
have caused Moore to make reference thereto in its report on our audited
financial statements.





We have
provided Moore with a copy of a Current Report on Form 8-K and requested that
Moore furnish us with a letter addressed to the Securities and Exchange
Commission stating whether or not Moore agrees with the statements made in this
Current Report on Form 8-K with respect to Moore and, if not, stating the
aspects with which they do not agree.  We received the requested
letter from Moore wherein they have confirmed their agreement to our disclosures
in the Current Report with respect to Moore.  A copy of Moore’s letter
was filed as an exhibit to the Current Report.





In
connection with our appointment of S&B as our principal registered
accounting firm at this time, we have not consulted S&B on any matter
relating to the application of accounting principles to a specific transaction,
either completed or contemplated, or the type of audit opinion that might be
rendered on our financial statements.
















SEALE
& BEERS, CPAs





We have
engaged GBH, CPAs, PC (“GBH”) as our principal independent registered public
accounting firm effective October 28, 2009.  Concurrent with this
appointment, we dismissed Seale & Beers, CPAs (“S&B”), effective October
28, 2009.  The decision to change our principal independent registered
public accounting firm has been approved by our Board of Directors.





We had
engaged S&B as our principal independent registered public accounting firm
effective August 11, 2009 after the acceptance of the resignation of Moore &
Associates, Chartered Accountants (“Moore”), effective August 10, 2009. On
August 27, 2009 the Public Company Accounting Oversight Board (the “PCAOB”)
revoked the registration of Moore due to: (i) violations of PCAOB rules and
auditing standards in auditing financial statements; (ii) violations of PCAOB
rules and quality controls standards; and (iii) violations of Section 10(b) of
the Securities Act of 1934 and Rule 10b-5 thereunder; and (iv) noncooperation
with a PCAOB investigation.





Therefore,
due to the length of time of engagement with S&B as our auditors, there is
no report by S&B on our financial statements. The report of Moore on our
financial statements for fiscal years ended December 31, 2008 and December 31,
2007 (which included the balance sheet as of December 31, 2008 and the statement
of operations, cash flows and stockholders’ equity for the period from May 11,
2006 (inception) through December 31, 2008), did not contain an adverse opinion
or disclaimer of opinion, nor was it modified as to uncertainty, audit scope or
accounting principles, other than to state that there is substantial doubt as to
our ability to continue as a going concern. During our fiscal year ended
December 31, 2008, and during the subsequent period through to the date of
Moore’s resignation, there were no disagreements between us and and Moore,
whether or not resolved, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Moore, would have caused Moore to make reference
thereto in its report on our audited financial statements.





We
provided S&B with a copy of the Current Report on Form 8-K and requested
that S&B furnish us with a letter addressed to the Securities and Exchange
Commission stating whether or not S&B agrees with the statements made in
this Current Report on Form 8-K with respect to S&B and, if not, stating the
aspects with which they do not agree.  We received the requested
letter from S&B wherein they have confirmed their agreement to our
disclosures in the Current Report with respect to S&B. A copy of S&B’s
letter was filed as an exhibit to the Current Report.





In
connection with our appointment of GBH as our principal registered accounting
firm at this time, we have not consulted GBH on any matter relating to the
application of accounting principles to a specific transaction, either completed
or contemplated, or the type of audit opinion that might be rendered on our
financial statements.




ITEM 9A. CONTROLS AND
PROCEDURES






EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES















We have
performed an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of our disclosure controls and procedures,
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on
that evaluation, our management, including our CEO and CFO, concluded that our
disclosure controls and procedures were not effective as of December 31, 2009 to
provide reasonable assurance that information required to be disclosed by us in
the reports filed or submitted by us under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.





MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Under the supervision and with the participation of our
management, including our CEO and CFO, we evaluated the effectiveness of our
internal control over financial reporting as of December 31, 2009. In making
this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control-Integrated Framework.





This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report on Form 10-K.





INHERENT
LIMITATIONS ON EFFECTIVENESS OF CONTROLS





We
believe that a controls system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives, and our CEO and our CFO have concluded that these
controls and procedures are not effective at the “reasonable assurance”
level.





CHANGES
IN INTERNAL CONTROLS





No
significant changes were implemented in our internal controls over financial
reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





AUDIT
COMMITTEE





Our Board
of Directors has not established an audit committee. The respective role of an
audit committee has been conducted by our Board of Directors. In the event the
Merger Agreement is not consummated, we intend to establish an audit committee
during fiscal year 2010. When established, the audit committee's primary
function will be to provide advice with respect to our financial matters and to
assist our Board of Directors in fulfilling its oversight











59





responsibilities
regarding finance, accounting, and legal compliance. The audit committee's
primary duties and responsibilities will be to: (i) serve as an independent and
objective party to monitor our financial reporting process and internal control
system; (ii) review and appraise the audit efforts of our independent
accountants; (iii) evaluate our quarterly financial performance as well as its
compliance with laws and regulations; (iv) oversee management's establishment
and enforcement of financial policies and business practices; and (v) provide an
open avenue of communication among the independent accountants, management and
our Board of Directors.






ITEM 9B. OTHER
INFORMATION






Not
applicable.






ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE






IDENTIFICATION
OF DIRECTORS AND EXECUTIVE OFFICERS






All of
our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.






Our
directors and executive officers, their ages and positions held are as
follows:




Name
            Age
            Position
      with the CompanySteven
      Harding
            50
            President,
      Chief Executive Officer/Principal Executive Officer and a
      DirectorBrian
      Manko
            43
            Chief
      Financial Officer,Manmohan
      Minhas
            55
            Treasurer
      and a DirectorHerb
      Dahliwal
            57
            Director





Business
Experience





The
following is a brief account of the education and business experience of each
director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed,
and including other directorships held in reporting companies.




Steve Harding.Mr. Harding has
been our President/Chief Executive Officer and a member of our board of
directors since October 29, 2008.  Mr. Harding has twenty-seven years
experience in the oil and gas exploration industry within numerous geological
basins both within and outside of North America.  He has occupied
various senior positions within EnCana Corp., and its predecessors Alberta
Energy and Husky Energy. From October 2003 to December 2004











60





he was
the vice president, Northern Canada and the vice president Alaska/Mackenzie
Delta from 2002 to September 2003. From 1998 to 2002 he was an exploration
manager for Alberta Energy in their New Ventures Group and the chief
geologist/geoscientist at Husky Energy from 1994 to 1998.  Since March
2005 he has acted as a self employed consultant, responsible for evaluating oil
and gas assets for a number
of  private  and  public  companies  from
a  technical  and  business  viability
perspective. In the latter half of the 1980's, he was responsible for developing
the geological model, which lead to the discovery of the White Rose field in
offshore Newfoundland. The White Rose field is believed to hold estimated
reserves of 450 - 500 Million barrels of oil and 3-4 trillion cubic feet of gas,
and currently produces approximately 110,000 barrels per day. While at EnCana,
he also negotiated and secured the largest exploration position in the US and
Canadian Arctic, leading to the discovery of the Umiak field 2004 and receiving
a Department of Minerals Management Service corporate citizen award in 2003 for
outstanding cultural and environmental efforts in Alaska.




Mr.
Harding received his Honours Bachelor of Science degree in Geology from McMaster
University in 1982 and his Masters degree in Geology from the University of
Alberta in 1985.





Brian Manko.Mr. Manko has
been our Chief Financial Officer since February 1, 2009. During the past
eighteen years, Mr. Manko has been involved with private and public companies
involving a wide range of industries. From approximately 2000 to present, Mr.
Manko has been directly involved with private money management as an
institutional investor and private investor specializing in both the capital and
currency markets. From approximately 2003 to present, Mr. Manko has been a
director for Morbank Mortgage Investment Company. From approximately 1996 to
2000 to 2003, Mr. Manko worked as an equity broker with Levesque Securities and
Research Capital. From approximately 1992 to 1996, Mr. Manko was employed by
Johnson & Johnson is its pharmaceuticals divisions. Mr. Manko is also
currently working in an executive financial position with a chapter of a
national volunteer group.





Mr. Manko
earned a Bachelor of Commerce degree in 1992 from the University of Calgary. In
addition, he has nearly completed his CMA accounting designation.





Manmohan Minhas.Mr. Minhas
has been our Treasurer and on our Board of Directors since May 11, 2006 and was
our prior President/Chief Executive Officer resigning effective October 29,
2008. Mr. Manmohan Minhas worked for PanCanadian Petroleum (now EnCana
Corporation) from May 1980 to August 1993. He started as a Project Engineer and
worked on the design and construction of oil and gas production facilities for
the company. These facilities included gas plants, compressor stations,
pipelines, and oil production batteries. By August 1985, he had successfully
completed over $100,000,000 worth of projects and led a department with twenty
employees.  On July 1986, he was transferred to Reservoir Exploitation
Department, where he worked on conceptual planning, reservoir engineering
studies, primary and secondary petroleum recovery studies, reserve estimates,
and production forecasts. These projects were all based in central and southern
Alberta. In this position, he was responsible for the supervision of twelve
engineers.





From June
1988 to September 1990, Mr. Minhas was the leader of the Reserves Task Force for
Pan Canadian, with a group of fifteen engineers, geologists and computer
personnel. The group reviewed over 15,000 oil and gas properties the company had
interest in Alberta, Saskatchewan, BC, Colorado and California for purposes of
regulatory disclosure of oil and gas reserves reporting.  On September
1990, he was appointed Supervisor, Production











61





Revenue
Department, and was responsible for acquisitions and divestures of producing
properties, and an operations budget for the company of over $500,000,000
annually.  He was also responsible for contracts for processing and
transportation of oil and gas through the company's facilities, and supervised a
staff of approximately twenty personnel. During his tenure with Pan Canadian,
Mr. Minhas supervised seven Alberta based oil and gas exploration projects
through conceptual development, drilling and production, with an aggregate
expenditure budget in excess of $150,000,000. Mr. Minhas left PanCanadian in
August 1993. From August 1993 to September 1994, Mr. Minhas acted as a Principal
Consulting Engineer with Quantel Engineering Ltd. At Quantel, Mr. Minhas did
conceptual, detailed engineering and project management of oil and
gas  field  production  facilities  in  Southern  Alberta,  including
compressor  stations,  pipelines,  gas plants and
gas wellsite  construction and development.





In
April  1990,  he  founded  and  acted  as  President  of  Minhas  Training  &
Development,  Inc., which conducted  seminars
for  multi-national  oil companies located throughout the
world, including Indonesia,  Malaysia,  Thailand, Brunei,
Canada,   USA,   Singapore  and  Russia.   Subjects
taught included reservoir engineering, petroleum economic evaluations, petroleum
production facilities and project management. He taught these seminars until
July 2000.





Mr.
Minhas received his B.Sc. (Mechanical Engineering) from the University of
Calgary in 1980. He is a registered professional engineer with Association of
Professional Engineers, Geologists and Geophysicists of Alberta
("APEGGA").  He was given an Exemplary Voluntary Service Award by
APEGGA in 1992.  He has also completed numerous seminars and courses
in many facets of petroleum production and facilities, reservoir engineering,
drilling, well testing and log analysis.





Mr.
Minhas is a member of the Board of Directors of American Oil & Gas Inc., a
publicly traded US oil and gas exploration and development company based in
Denver, Colorado. The company is listed on the AMEX and trades under the symbol
"AEZ".  He is also a member of the company's audit committee and
compensation committee.





Herb Dhaliwal.Mr. Dhaliwal
has been a member of our Board of Directors since September 25, 2009. The
Honorable Herb Dhaliwal is a strategic advisor to private and public companies
in Canada. During the past thirty years, Mr. Dhaliwal has been involved in
national electoral politics in Canada. From approximately 1997 through 2004, Mr.
Dhaliwal successively held the portfolios of National Revenue, Fisheries &
Oceans and Natural Resources in Ottawa. He was also the senior Minister for
Western Canada in the federal Cabinet of Primter Minister Jean Chretien. Prior
to entering national electoral politics, and including current date, Mr.
Dhaliwal is also an entrepreneur, business owner, corporate director and advisor
with interests in transportation, building maintenance, housing construction and
real estate development. Before sitting the Parliament of Canada for
Vancouver-South/Burnaby constituency from October 1993 through June 2004, Mr.
Dhaliwal had been appointed by the British Columbia government as Vice-Chair of
the British Columbia Hydro and Power Authority board of directors, where he
chaired the budget and audit committees.











62








During
his early tenure in the House of Commons, Mr. Dhaliwal: (i) served on the
Standing Committees on Finance and Fisheries; (ii) was parliamentary secretary
to the Minister of Fisheries & Oceans; and (iii) was Vice-Chair of the
Standing Committee on Health. He played an active role as a prominent member of
the Prime Minister’s “TEAM CANADA” 1996 trade mission to India and led the
Canadian Parliamentary Observer presence for presidential elections in the
Dominican Republic. He also participated in parliamentary delegations to Cuba
and UNESCO and addressed an International Parliamentary Association Conference
in Beijing China on behalf of Canada regarding the elimination of land
mines.





Among his
accomplishments while a Minster, Mr. Dhaliwal restructured Revenue Canada into
the re-named Canada Customers & Revenue Agency, accompanied the
Governor-General on state visits to India, and instituted an annual
international conference on ocean stewardship. During 1997 through 2004, Mr.
Dhaliwal’s ministerial career also included three key economic assignments
during which he had the rare distinction of being the first South Asian to hold
a Cabinet position anywhere in a Western democracy.





Mr.
Dhaliwal is a graduate in commerce from the University of British
Columbia.





COMMITTEES
OF THE BOARD OF DIRECTORS





As of the
date of this Annual Report, we have not established an audit committee, a
compensation committee nor a nominating committee. In the event the Merger
Agreement is not consummated, we intend within the next fiscal quarter to
establish such committees and adopt and authorize certain corporate governance
policies and documentation.




FAMILY
RELATIONSHIPS






There are
no family relationships among our directors or officers.






INVOLVEMENT IN CERTAIN LEGAL
PROCEEDINGS






During
the past five years, none of our directors, executive officers or persons that
may be deemed promoters is or have been involved in any legal proceeding
concerning: (i) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time; (ii) any conviction in
a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (iii) being subject to
any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction permanently or temporarily enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity; or (iv) being found by a court, the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law (and the judgment has
not been reversed, suspended or vacated).

















COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT






Section
16(a) of the Exchange Act requires our directors and officers, and the persons
who beneficially own more than ten percent of our common stock, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Copies of all filed reports are required to be furnished to us
pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the
reports received by us and on the representations of the reporting persons, we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended December 31, 2009. The exception to the compliance
is




ITEM 11. EXECUTIVE
COMPENSATION





The
following table sets forth the compensation paid to our Chief Executive Officer
and those executive officers that earned in excess of $100,000 during fiscal
years ended December 31, 2009 and 2008 (collectively, the “Named Executive
Officers”):





SUMMARY
COMPENSATION TABLE




Name
      and Principal Position
            Year
            Salary
              ($)
            Bonus
              ($)
            Stock
      Awards
              ($)
            Option
      Awards ($)
            Non-Equity
      Incentive Plan Compensation
              ($)
            Non-Qualified
      Deferred Compensation Earnings
              ($)
            All
      Other Compensation
              ($)
            Total
              ($)
      (2)(3)Steve
      Harding  President and CEO
            2008
              
              2009
            -0-
              125,000
            -0-
              -0-
            -0-
              -0-
            -0-   (1)883,812
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              441,666Brian
      Manko, Chief Financial Officer
            2008
              2009
            -0-
              33,000
            -0-
              -0-
            -0-
              -0-
            -0-  (1)132,572
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              175,500





(1)
            This
      amount represents the fair value of these Stock Options at the date of
      grant which was estimated using the Black-Scholes option pricing
      model.





STOCK
OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2009





The
following table sets forth information as at December 31, 2009 relating to Stock
Options that have been granted to the Named Executive Officers:
















OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDS
            STOCK
      AWARDSName
            Number
      of Securities Underlying Unexercised Options
              Exercisable
              (#)
            Number
      of Securities Underlying Unexercised Options
              Unexercisable
              (#)
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options
              (#)
            Option
      Exercise Price
              ($)
            Option
      Expiration Date
            Number
      of Shares or Units of Stock That Have Not Vested
              (#)
            Market
      Value of Shares or Units of Stock That Have Not Vested
              ($)
            Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      That Have Not Vested
              (#)
            Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested
              (#)Steve
      Harding, President/CEO
            (1)
              333,333
            -0-
            666,667
            .80
            09/14/09
            -0-
            -0-
            -0-
            -0-Brian
      Manko
              CFO
            (2)
              50,000
            -0-
            100,000
            .80
            09/14/09
            -0-
            -0-
            -0-
            -0-







(1)  Mr.
Harding was granted 1,000,000 Stock Options on September 14, 2009 of which
333,333 Stock Options vested immediately, 333,333 Stock Options shall vest
September 14, 2012 and the remaining 333,334 Stock Options shall vest September
14, 2015. The 333,333 Stock Options are exercisable into 333,333 shares of
common stock at $0.80 per share with a Black Scholes valuation of $316,666. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters."






(2)   Mr.
Manko was granted 150,000 Stock Options on September 14, 2009 of which 50,000
Stock Options vested immediately, 50,000 Stock Options shall vest September 14,
2012 and the remaining 50,000 Stock Options shall vest September 14, 2015. The
50,000 Stock Options are exercisable into 50,000 shares of common stock at $0.80
per share with a Black Scholes valuation of $47,500.




The
following table sets forth information relating to compensation paid to our
directors during fiscal year ended December 31, 2009 and 2008:

















65





DIRECTOR
COMPENSATION TABLE




Name
            Fees
              Earned
      or
              Paid
      in
              Cash
              ($)
            Stock
              Awards
              ($)
            Option
              Awards
              ($)
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            Change
      in
              Pension
              Value
      and
              Nonqualified
              Deferred
              Compensation
              Earnings
              ($)
            All
              Other
              Compensation
              ($)
            Total
              ($)Manmohan
      Minhas
              
              2008
              2009
            -0-
              -0-
            -0-
              -0-
            (1)
              -0-
              31,666
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              31,666Steve
      Harding
              
              2008
              2009
            (2)
              -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-Devinder
      Randhawa
              
              2008
              2009
            $10,000
              15,000
            -0-
              -0-
            (3)
              -0-
              237,500
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-Herb
      Dhaliwal
              
              2009
            -0-
            -0-
            (4)
              95,000
            -0-
            -0-
            -0-
            -0-Ravinder
      Minhas, prior member
              
              2008
            -0-
            -0-
            -0-
            -0-
            -0-
            -0-
            -0-




(1)
            Mr.
      Minhas was granted 100,000 Stock Options on September 14, 2009 of which
      33,333 Stock Options vested immediately, 33,333 Stock Options shall vest
      September 14, 2012 and the remaining 33,334 Stock Options shall vest
      September 14, 2015. The 33,333 Stock Options are exercisable into 33,333
      shares of common stock at $0.80 per share with a Black Scholes valuation
      of $31,666.






(2)
            Mr.
      Harding’s compensation has been disclosed above in the “Summary
      Compensation Table” as compensation related to his executive position as
      President/Chief Executive Officer.






(3)
            Mr.
      Randhawa was granted 750,000 Stock Options on September 14, 2009 of which
      250,000 Stock Options vested immediately, 250,000 Stock Options shall vest
      September 14, 2012 and the remaining 250,000 Stock Options shall vest
      September 14, 2015. The 250,000 Stock Options are exercisable into 250,000
      shares of common stock at $0.80 per share with a Black Scholes valuation
      of $237,500. Mr. Randhawa resigned effective as of November 25, 2009 but
      continues to serve us as a consultant. The Board of Directors has
      authorized the retention of the 250,000 Stock
  Options.






(4)
            Mr.
      Dhaliwal was granted 300,000 Stock Options on September 25, 2009 of which
      100,000 Stock Options vested immediately, 100,000 Stock Options shall vest
      September 14, 2012 and the remaining 100,000 Stock Options shall vest
      September 14, 2015. The 100,000 Stock Options are exercisable into 100,000
      shares of common stock at $0.80 per share with a Black Scholes valuation
      of $95,000.00













66





EMPLOYMENT
AND CONSULTING AGREEMENTS





As of the
date of this Annual Report, we have entered into verbal month-to-month
contractual relationships with certain of our executive officers and directors
as follows. See “Item 13. Certain Relationships and Related Transactions and
Director Independence.”





President/Chief Executive
Officer





As of
January 1, 2009, we entered into a contractual relationship with Perfect Ocean
Investments Inc. (“POI”) regarding the engagement and compensation of Steve
Harding, our President/Chief Executive Officer (the “Harding Arrangement”). In
accordance with the terms and provisions of the Harding Arrangement, we will pay
a monthly salary of $10,000 to POI as compensation for Mr. Harding.  A
Board Resolution was passed on November 24th, by
Board members excluding Mr. Harding, that his monthly salary would be increased
to $15,000, to better align with professional compensation recognized from
salary surveys conducted by the Association of Engineers, Geologists and
Geophysicists of Alberta (A.P.E.G.G.A.).





Chief
Financial Officer





As of
February 1, 2009, we entered into a contractual relationship with Manko Business
Consulting Corp. (“MBCC”) regarding the engagement and compensation of Brian
Manko, our Chief Financial Officer (the “Manko Arrangement”). In accordance with
the terms and provisions of the Manko Arrangement, we will pay a monthly salary
of $2,750 to MBCC as compensation for Mr. Manko.





Director





As of
November 1, 2008, we entered into a contractual relationship with Devinder
Randhawa regarding the engagement and compensation of Mr. Randhawa as a member
of our Board of Directors (the “Randhawa Arrangement”). In accordance with the
terms and provisions of the Randhawa Arrangement, we will pay a monthly salary
of $5,000 to Mr. Randhawa as compensation. This compensation relationship
continued until March 31st,
2009 when such compensation was waived. Mr. Randhawa resigned from our Board of
Directors effective November 25, 2009. The 250,000 Stock Options granted to him
will by their terms expire ninety days from the date of resignation. The Board
of Directors has authorized the extension of the exercise period for one year
from the date of resignation. The remaining 500,000 Stock Options will not
vest.




ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS




As of the
date of this Annual Report, the following table sets forth certain information
with respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated. As of the date of
this Annual Report, there are 60,273,333 shares of common stock issued and
outstanding.
















Name
      and Address of Beneficial Owner(1)
            Amount
      and Nature of Beneficial Ownership(1)
            Percentage
      of Beneficial OwnershipDirectors
      and Officers:Steve
      Harding
              407
      2nd
      Street SW
              Calgary,
      Alberta
              Canada
      T2P 2Y3
            (2)
              2,483,333
            4.12%Brian
      Manko
              407
      2nd
      Street SW
              Calgary,
      Alberta
              Canada
      T2P 2Y3
            (3)
              350,000
            NilHerb
      Dhaliwal
              407
      2nd
      Street SW
              Calgary,
      Alberta
              Canada
      T2P 2Y3
            (4)
              675,000
            1.11%Manmohan
      Minhas
              407
      2nd
      Street SW
              Calgary,
      Alberta
              Canada
      T2P 2Y3
            (5)
              1,008,333
            1.68%All
      executive officers and directors as a group (4 persons)
            (6)
              4,516,666
            7.06%5%
      or Greater Beneficial Owners:Westrock
      Land Corp.
              Address
            4,037,500
            6.73%Dev
      Randhawa
              407
      2nd
      Street SW
              Calgary,
      Alberta
              Canada
      T2P 2Y3
            (7)
              3,450,000
            5.73%









*
            Less
      than one percent.




(1)
            Under
      Rule 13d-3, a beneficial owner of a security includes any person who,
      directly or indirectly, through any contract, arrangement, understanding,
      relationship, or otherwise has or shares: (i) voting power, which includes
      the power to vote, or to direct the voting of shares; and (ii) investment
      power, which includes the power to dispose or direct the disposition of
      shares. Certain shares may be deemed to be beneficially owned by more than
      one person (if, for example, persons share the power to vote or the power
      to dispose of the shares). In addition, shares are deemed to be
      beneficially owned by a person if the person has the right to acquire the
      shares (for example, upon exercise of an option) within 60 days of the
      date as of which the information is provided. In computing the percentage
      ownership of any person, the amount of shares outstanding is deemed to
      include the amount of shares beneficially owned by such person (and only
      such person) by reason of these acquisition rights. As a result, the
      percentage of outstanding shares of any person as shown in this table does
      not necessarily reflect the person’s actual ownership or voting power with
      respect to the number of shares of common stock actually outstanding as of
      the date of this Annual Report. As of the date of this Annual Report,
      there are 60,273,333 shares issued and outstanding. Beneficial ownership
      amounts reflect the 2009 Forward Stock
Split.















(2)
            This
      figure consists of: (i) 2,150,000 shares of common stock; and (ii) 333,333
      vested Stock Options which are exercisable by Mr. Harding to purchase
      333,333 shares of our common stock at an exercise price of $0.80 per share
      expiring on September 14, 2019.




(3)
            This
      figure consists of: (i) 300,000 shares of common stock; and (ii) 50,000
      vested Stock Options which are exercisable by Mr. Manko to purchase 50,000
      shares of our common stock at an exercise price of $0.80 per share
      expiring on September 14, 2019.




(4)
            This
      figure consists of: (i) 575,000 shares of common stock; and (ii) 100,000
      vested Stock Options which are exercisable by Mr. Dhaliwal to purchase
      100,000 shares of our common stock at an exercise price of $0.80 per share
      expiring on September 25, 2019.




(5)
            This
      figure consists of: (i) 975,000 shares of common stock; and (ii) 33,333
      vested Stock Options which are exercisable by Mr. Minhas to purchase
      33,333 shares of our common stock at an exercise price of $0.80 per share
      expiring on September 14, 2019.




(6)
            This
      figure consists of: (i) 4,000,000 shares of common stock; and (ii) 516,666
      vested Stock Options to purchase 516,666 shares of our common stock at an
      exercise price of $0.80.




(7)
            This
      figure consists of: (i) 3,200,000 shares of common stock; and (ii) 250,000
      vested Stock Options exercisable by Mr. Randhawa to purchase 250,000
      shares of our common stock at an exercise price of $0.80 per share
      expiring on September 14, 2019. Due to Mr. Randhawa’s resignation
      effective November 25, 2009, the Stock Options were to expire within
      ninety days from the date of resignation. The Board of Directors has
      authorized the retention of the Stock Options based upon Mr. Randhawa’s
      continuing service to us as a
consultant.









CHANGES
IN CONTROL





We are
unaware of any contract, or other arrangement or provision, the operation of
which may at a subsequent date result in a change of control of our
company.





ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE





As of the
date of this Annual Report, other than as disclosed below, none of our
directors, officers or principal stockholders, nor any associate or affiliate of
the foregoing, have any interest, direct or indirect, in any transaction or in
any proposed transactions, which has materially affected or will materially
affect us during fiscal year ended December 31, 2009.




EMPLOYMENT
ARRANGEMENTS




As of the
date of this Annual Report, we have verbally agreed to pay certain of our
executive officers and directors compensation for services rendered as
follows:














69





President/Chief Executive
Officer





As of
January 1, 2009, we entered into a contractual relationship with POI regarding
the engagement and compensation of Steve Harding, our President/Chief Executive
Officer (the “Harding Arrangement”). In accordance with the terms and provisions
of the Harding Arrangement, we will pay a monthly salary of $10,000 to POI as
compensation for Mr. Harding. A Board Resolution was passed on November 24th, by
Board members excluding Mr. Harding, that his monthly salary would be increased
to $15,000, to better align with professional compensation recognized from
salary surveys conducted by the Association of Engineers, Geologists and
Geophysicists of Alberta (A.P.E.G.G.A.).





Chief
Financial Officer





As of
January 1, 2009, we entered into a contractual relationship with MBCC regarding
the engagement and compensation of Brian Manko, our Chief Financial Officer (the
“Manko Arrangement”). In accordance with the terms and provisions of the Manko
Arrangement, we will pay a monthly salary of $2,750 to MBCC as compensation for
Mr. Manko.





Director





As of
November 1, 2008, we entered into a contractual relationship with Devinder
Randhawa regarding the engagement and compensation of Mr. Randhawa as a member
of our Board of Directors (the “Randhawa Arrangement”). In accordance with the
terms and provisions of the Randhawa Arrangement, we will pay a monthly salary
of $5,000 to Mr. Randhawa as compensation. This compensation relationship
continued until March 31st,
2009 when such compensation was waived. Mr. Randhawa resigned from our Board of
Directors effective November 25, 2009. Mr. Randhawa continues to serve us as a
consultant.




DIRECTOR LOANS






During
fiscal year ended December 31, 2009, a director and an unrelated third party
advanced $87,548 to us. Interest of 10% per annum will be paid to the lenders
beginning July 1, 2009 and the loans are due upon demand.






Except
for the transactions described above, none of our directors, officers or
principal stockholders, nor any associate or affiliate of the foregoing, have
any interest, direct or indirect, in any transaction or in any proposed
transactions, which has materially affected or will materially affect us during
fiscal year ended December 31, 2009.






ITEM 14. PRINCIPAL ACCOUNTING
FEES AND SERVICES






During
fiscal year ended December 31, 2009, we incurred $21,530 in fees to our
principal independent accountant for professional services rendered in
connection with the audit of our financial statements for fiscal year ended
December 31, 2009 and for the review of our financial statements for the
quarters ended March 31, 2009, June 30, 2009 and August 31, 2009.















During
fiscal year ended December 31, 2008, we incurred approximately $5,000 in fees to
our principal independent accountant for professional services rendered in
connection with the audit of our financial statements for fiscal year ended
December 31, 2008 and for the review of our financial statements for the
quarters ended March 31, 2008, June 30, 2008 and September 30,
2008.




During
fiscal year ended December 31, 2009, we did not incur any other fees for
professional services rendered by our principal independent accountant for all
other non-audit services which may include, but is not limited to, tax-related
services, actuarial services or valuation services.






ITEM 15. EXHIBITS AND FINANCIAL
SCHEDULES






The
following exhibits are filed as part of this Annual Report.




EXHIBIT
      NO.                         DOCUMENT
              
              3.1Articles
      of Incorporation (1)
              
              3.1.2  Articles
      of Incorporation as amended.
              
              3.1.3  Articles of Merger between
      Minhas Energy Consultants and American Energy Corp. (2)
              
              3.2Bylaws
      (1)
              
              10.1Option
      Agreement between American Energy Corporation  and Westrock Land
      Corporation dated October 2008. (3)
              
              10.25%
      Convertible Debenture dated October 13, 2009 between American Exploration
      Corporation and DMS Ltd. (4)
              
              10.3Stock
      Option Plan of American Exploration Corporation dated September 14, 2009.
      (5)
              
              10.4Merger
      Agreement and Plan of Merger dated March __, 2010 between American
      Exploration Corporation and Mainland Resources Inc.
              
              16.
      1Letter from Moore & Associates
      dated August 11,
      2009.         (6)
              
              16.
      2    
      Letter from Seale & Beers, CPAs dated November 2, 2009.
      (7)
              
              31.1Certification  of  Chief  Executive   Officer  Pursuant  to Rule
      13a-14(a) or 15d-14(a) of the Securities Exchange Act.
              
              31.2Certification of Chief Financial
      Officer Pursuant  to  Rule13a-14(a)
      or 15d-14(a) of the Securities Exchange Act.
              
              32.1Certification  of
      Chief  Executive  Officer  and
      Chief Financial Officer Under Section 1350 as
      Adopted  Pursuant to Section 906 of the Sarbanes-Oxley
      Act.







(1)
Incorporated by reference from our Registration Statement on Form SB-2 filed
with the Commission on March 5, 2006.





(2)
Incorporated by reference from our Current Report on Form 8-K filed with the
Commission on August 8, 2008.





(3)
Incorporated by reference from our Current Report on Form 8-K filed with the
Commission on November 6, 2008 and our Amendment No. 1 to Current Report filed
with the Commission on January 25, 2009.





(4)
Incorporated by reference from Form Current Report on Form 8-K filed with the
Commission on October 19, 2009.





(5)  Incorporated
by reference from Quarterly Report on Form 10-Q filed with the Commission on
November 20, 2009.





(6)  Incorporated
by reference from Current Report on Form 8-K filed with the Commission on August
17, 2009.





(7)  Incorporation
by referenced from Current Report on Form 8-K filed with the Commission November
4, 2009.




















AMERICAN EXPLORATION
CORPORATION




AMERICAN
      EXPLORATION CORPORATIONDated:
      April 13, 2010
            By:
            /s/ STEVE
      HARDINGSteve
      Harding, President/ChiefExecutive
      OfficerDated:
      April 13, 2010
            By:
            /s/
      BRIAN MANKOBrian
      Manko, Chief Financial OfficerDated:
      April 13, 2010
            By:
            /s/ STEVE
      HARDINGDirectorDated:
      April 13, 2010
            By:
            /s/ HERB
      DHALIWALDirectorDated:
      April 13, 2010
            By:
            /s/ MANMOHAN
      MINHASDirector




Pursuant
to the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.







AMERICAN
      EXPLORATION CORPORATIONDated:
      April 13, 2010
            By:
            /s/ STEVE
      HARDINGSteve
      Harding, President/ChiefExecutive
      OfficerDated:
      April 13, 2010
            By:
            /s/
      BRIAN MANKOBrian
      Manko, Chief Financial Officer






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





Dated:
      April 13, 2010
            By:
            /s/ STEVE
      HARDINGDirectorDated:
      April 13, 2010
            By:
            /s/ HERB
      DHALIWALDirectorDated:
      April 13, 2010
            By:
            /s/ MANMOHAN
      MINHASDirector