UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June~~September 30, 2011

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

For the transition period ~~from~~ from_____________________ to _____________________

Commission File Number: 333-143626

AMERICAN EAGLE ENERGY INC.

(Exact name of registrant as specified in its charter)

Nevada	20-8642477
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

27 North 27th Street, Suite 21G, Billings, MT	59101
(Address of principal executive offices)	(Zip Code)

(406) 294-9765

(Registrant’s telephone number, including area code)

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

Yes x No ¨

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

(Check one):

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨	Smaller reporting company x

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

Yes ¨o No x

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

43,374,158 shares of common stock issued and outstanding at ~~August~~November 15, 2011.

AMERICAN EAGLE ENERGY INC.

FORM 10-Q

QUARTERLY PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2011

INDEX

A Note About Forward Looking Statements	1	1
PART I - FINANCIAL INFORMATION
Item 1 – Condensed Consolidated Financial Statements (Unaudited)	2	2
Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010		F-2
Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010	F-1
Condensed Consolidated Statements of Operations For Each of the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010 (Unaudited)		F-3
Condensed Consolidated Statements of Operations For Each of the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010 (Unaudited)	F-2
Condensed Consolidated Statements of Comprehensive Income For Each of the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010 (Unaudited)		F-4
Condensed Consolidated Statements of Comprehensive Income For Each of the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010 (Unaudited)	F-3
Condensed Consolidated Statements of Cash Flows For Each of the Six-Month Periods Ended June 30, 2011 and 2010 (Unaudited)		F-5
Condensed Consolidated Statements of Cash Flows For Each of the Nine-Month Periods Ended September 30, 2011 and 2010 (Unaudited)	F-4
Notes to the Condensed Consolidated Financial Statements (Unaudited)	F-6	~~F-7~~
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	4	3
Item 4 - Controls and Procedures	14	13
PART II - OTHER INFORMATION
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	15	14
Item 6 – Exhibits	15	14
Signatures	18	17

A Note About Forward-Looking Statements

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

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

American Eagle Energy Inc.

Condensed Consolidated Financial Statements

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods ended ~~June~~September 30, 2011 and 2010

American Eagle Energy Inc.

Index to the Financial Statements

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

Condensed Consolidated Financial Statements of American Eagle Energy Inc.:
Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010		F-2
Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010	F-1
Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010 (Unaudited)		F-3
Condensed Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010 (Unaudited)	F-2
Condensed Consolidated Statements of Comprehensive Income for the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010		F-4
Condensed Consolidated Statements of Comprehensive Income for the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010 (Unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2011 and 2010 (Unaudited)		F-5
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2011 and 2010 (Unaudited)	F-4
Notes to the Condensed Consolidated Financial Statements (Unaudited)	F-6	~~F-7~~

~~F-1~~3

American Eagle Energy Inc.

Condensed Consolidated Balance Sheets

As of ~~June~~September 30, 2011 and December 31, 2010

	June 30,
	September 30,
	2011			December 31,
	(Unaudited)			2010
Current assets:
Cash	$	31,~~157~~435,~~630~~941		$	79,768
Stock subscription receivable		-			2,666,667
Receivables from working interest partners		1205,~~127,387~~821			-
Prepaid expenses		128,~~864~~714			-
Total current assets		4,297,881			2,746,435
Drilling deposits		560,800			-
Oil and gas properties – subject to amortization, net of accumulated depletion of $142,079 and $113,596, respectively		1,977,937			965,848
Total current assets		2,211,276			2,746,435
Oil and gas properties – not subject to amortization		3,337,761			2,820,301
Oil and gas properties – subject to amortization, net of accumulated depletion of $168,986 and $113,596, respectively		4,994,067			965,848
Marketable securities - related party		127,426			197,453
Oil and gas properties – not subject to amortization		2,155,206			2,820,301
Total assets	$	9,741,005		$	6,730,037
Marketable securities – related party		78,095			197,453
Other non-current assets		1,500			-
Total assets	$	9,440,144		$	6,730,037
Current liabilities:
Accounts payable and accrued liabilities	$	1,~~402~~702,~~239~~179		$	758,032
Amounts due to Eternal Energy Corp.		~~667~~317,~~333~~441			279,376
Due to related parties		~~14,000~~-			20,000
Convertible debenture, net of discount of $496,601		503,399			-
Convertible debenture, net of discount of $355,020		644,980			-
Total current liabilities		2,~~586~~664,~~971~~600			1,057,408
Convertible debenture, net of discount of $926,333		-			73,667
Convertible debenture, net of discount of $923,333		-			73,667
Long-term asset retirement obligation, net of discount of $44,090 and $23,647, respectively		16,473			13,853
Long-term asset retirement obligation, net of discount of $22,883 and $23,647, respectively		16,888			13,853
Total liabilities		2,~~603~~681,~~444~~488			1,144,928
Commitments and contingencies		-			-
Stockholders’ equity:
Common stock, $.001 par value, 150,000,000 shares authorized, 43,374,158 and 37,540,000 shares outstanding		43,374			37,540
Additional paid-in capital		7,224,331			7,230,166
Stock subscriptions receivable		-			(833,333	)
Accumulated unrealized gains on marketable securities		~~101~~52,~~880~~549			172,818
Accumulated deficit		(~~232~~561,~~024~~598	)		(1,022,082	)
Total stockholders’ equity		76,~~137~~758,~~561~~656			5,585,109
Total liabilities and stockholders’ equity	$	9,~~741~~440,~~005~~144		$	6,730,037

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

F-21

American Eagle Energy Inc.

Condensed Consolidated Statements of Operations (Unaudited)

	For the Three-Month Period						For the ~~Six~~Nine-Month Period
	Ended June 30,						Ended June 30,
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Oil and gas revenues	$	10123,~~437~~603		$	-6,398		$	46170,~~477~~080		$	-6,398
Gain on sale of oil and gas properties — not subject to amortization, net of costs		2,085,627			-			2,085,627			-
Gain on sale of oil and gas properties -- not subject to amortization, net of costs		46,077			-			2,131,704			-
Total revenue		2169,~~096,064~~680			-6,398			2,~~132~~301,~~104~~784			-6,398
Operating expenses:
Oil and gas operating expenses		7166,~~042~~961			-41,110			~~117~~184,~~676~~637			-41,110
General and administrative		~~167~~164,~~722~~170			3470,~~708~~173			~~275~~439,~~072~~242			40110,~~048~~221
Professional fees		~~148~~49,~~360~~990			3556,~~888~~170			~~382~~432,~~376~~366			59155,~~402~~572
Professional fees – related party		3828,000			3040,000			6896,000			75,000
Depreciation, amortization, and depletion expense		1426,~~278~~908			-			2855,~~482~~390			-
Impairment of oil and gas prospects		-			~~5,937~~-			-			5,937
Total operating costs		~~439~~336,~~402~~029			~~106~~207,~~533~~453			~~871~~1,~~606~~207,635			~~180,~~387,840
Total operating income (loss)		1(166,~~656,662~~349	)		(~~106~~201,~~533~~055	)		1,~~260~~094,~~498~~149			(~~180~~381,~~387~~442	)
Interest expense		(2021,~~000~~230	)		(166,~~667~~939	)		(4061,~~000~~230	)		(1623,~~667~~606	)
Accretion of debenture discount		(~~198~~141,~~231~~580	)		(1170,~~688~~128	)		(~~429~~571,~~733~~313	)		(1181,~~688~~816	)
Accretion of discount on asset retirement obligation		(~~358~~415	)		-			(~~707~~1,122	)		-
Income (loss before taxes		1(329,~~438,073~~574	)		(~~134~~278,~~888~~122	)		~~790~~460,~~058~~484			(~~208~~486,~~742~~864	)
Provision for income taxes		-			-			-			-
Net income (loss)	$	1(329,~~438,073~~574	)	$	(~~134~~278,~~888~~122	)	$	~~790~~460,~~058~~484		$	(~~208~~486,~~742~~864	)
Net income (loss) per common share:
Basic	$	(0.0301	)	$	(0.0001	)	$	0.0201		$	(0.0001	)
Diluted	$	(0.0301	)	$	(0.0001	)	$	0.0201		$	(0.0001	)
Weighted average number of shares outstanding -
Basic		43,~~231~~374,~~357~~158			4437,~~913~~540,~~334~~000			4142,~~299~~001,~~259~~576			4437,~~376~~185,~~889~~000
Diluted		4443,~~575~~374,~~384~~158			4437,~~913~~540,~~334~~000			4243,~~675~~259,~~072~~481			4437,~~376~~185,~~889~~000

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

F-32

American Eagle Energy Inc.

Condensed Consolidated Statements of Comprehensive Income (~~Unaudited~~Loss)

	For the Three-Month Period						For the Six-Month Period
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Net income (loss)	$	1,438,073		$	(134,888	)	$	790,058		$	(208,742	)
Other comprehensive losses, before tax:
Unrealized losses on securities		(44,404	)		-			(70,938	)		-
Total other comprehensive losses, before tax		(44,404	)		-			(70,938	)		-
Comprehensive income (loss)	$	1,393,669		$	(134,888	)	$	719,120		$	(208,742	)

(Unaudited)

	For the Three-Month Period						For the Nine-Month Period
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Net income (loss)	$	(329,574	)	$	(278,122	)	$	460,484		$	(486,864	)

Other comprehensive income (losses), before tax:
Unrealized gains (losses) on securities		(49,331	)		149,688			(120,269	)		149,688
Total other comprehensive income (losses), before tax		(49,331	)		149,688			(120,269	)		149,688

Comprehensive income (loss)	$	(378,905	)	$	(128,434	)	$	340,215		$	337,176

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

F-43

American Eagle Energy Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

	2011			2010
Cash flows provided by (used for) operating activities:
Net income (loss)	$	~~790~~460,~~058~~484		$	(~~208~~486,~~742~~864	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Non cash transactions:
Depletion		2855,~~482~~390			-
Accretion of discount on debenture		~~429~~571,~~733~~313			1181,~~688~~816
Accretion of discount on asset retirement obligations		~~707~~1,122			-
Gain on sale of oil and gas properties		(2,~~085~~131,~~627~~704	)		-
Changes in operating assets and liabilities:
Increase in prepaid expense		(128,~~864~~714	)		-
Increase in amounts due from working interest partners		(1,127,387	)		-
Increase in non-current assets		(1,500	)		-
Increase in amounts due to Eternal Energy Corp.		387,957			-
Increase in amounts due from working interest partners		(205,821	)		-
Increase in accounts payable and accrued liabilities		644,206			878,101
Increase in amounts due to Eternal Energy Corp.		38,072			394,892
Increase (decrease) in amounts due to related parties		(6,000	)		30,000
Increase in accounts payable and accrued liabilities		944,139			379,731
Net cash provided by (used for) operating activities		(950,735	)		711,047
Increase (decrease) in amounts due to related parties		(20,000	)		20,004
Net cash provided by (used for) operating activities		(297,219	)		389,579
Cash flows provided by (used for) investing activities:
Proceeds from the sale of oil and gas properties		3,~~914~~962,~~811~~656			-
Additions to oil and gas properties		(35,~~385~~247,~~303~~553	)		(12,~~666~~155,~~633~~138	)
Payment of drilling deposits		(560,800	)		-
Purchase of marketable securities		(911	)		(24,635	)
Net cash provided by (used for) investing activities		~~528~~(1,~~597~~846,608	)		(12,~~691~~179,~~268~~773	)
Cash flows provided by (used for) financing activities:
Proceeds from sale of Debenture		-			1,000,000
Proceeds from the issuance of stock		-			805,000
Collection of stock subscriptions receivable		3,500,000			-
Net cash provided by financing activities		3,500,000			1,805,000
Net increase in cash		31,~~077~~356,~~862~~173			~~824~~14,~~779~~806
Cash - beginning of period		79,768			2,239
Cash - end of period	$	31,~~157~~435,~~630~~941		$	~~827~~17,~~018~~045

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

F-54

American Eagle Energy Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

Supplemental Disclosure of Cash Flow Information

	2011		2010
Cash paid during the period for:
Interest	$	4081,~~000~~230	$	-16,667
Income taxes	$	-	$	-

Supplemental Disclosure of Non-Cash Investing and Financing Activities

	2011			2010
Change in value of marketable securities	$	70(120,~~938~~269	)	$	-
Issuance of stock upon collection of stock subscription	$	5,834		$	-
Recording of asset retirement obligation, net of discount of $21,150	$	1,913		$	-
Warrants issued with convertible debt, recorded as a discount on the debt	$	-		$	280.,511

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

F-65

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

1.	Description of Business

American Eagle Energy, Inc. (the “Company”) was incorporated in the state of Nevada in March 2007 for the purpose of identifying and pursuing exploratory oil and gas opportunities. As of ~~June~~September 30, 2011, the Company had acquired working interests in oil and gas prospects located in Montana, North Dakota, Texas, and southeastern Saskatchewan, Canada.

In December 2010, the Company changed its fiscal year end from April 30 to December 31. The 2010 figures presented herein are presented for comparative purposes and are based on different fiscal quarters than what was presented in the Company’s previously filed Quarterly Reports on Form 10-Q.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned, Canadian subsidiary, AEE Canada Inc. The subsidiary was created to house the Company’s Canadian oil and gas property holdings and to conduct business activities within Canada. All material intercompany accounts, transactions, and profits have been eliminated.

These condensed consolidated financial statements are presented in United States Dollars and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8 of SEC Regulation S-X. The principles for interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the eight-month period ended December 31, 2010 and for the year ended April 30, 2010. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair statement of the condensed results for the interim periods. Operating results for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

F-7

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2011 and December 31, 2010 and

For the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010

Revenue Recognition

The Company records the sale of its interests in prospects as a reduction to the cost pool when the terms of the transaction are final and the sales price is determinable. Working interest, royalty, and net profit interests are recognized as revenue when oil and gas is sold and persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured.

F-6

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2011 and December 31, 2010 and

For the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010

Concentration of Credit Risk

At ~~June~~September 30, 2011, the Company had $2939,~~974,526~~168 on deposit that that exceeded the United States (FDIC) federal insurance limit of $250,000 per bank. The Company believes that this credit risk is mitigated by the financial strength of the financial institution with which the funds are held.

Components of Other Comprehensive Income

Comprehensive income consists of net income and other gains and losses affecting ~~shareholders~~stockholders’ equity that, under generally accepted accounting principles are excluded from net income. For the Company, such items consist solely of unrealized gains and losses on marketable equity investments.

Cash and Cash Equivalents

Cash equivalents consist of time deposits and liquid debt investments with original maturities of three months or less at the time of purchase. The Company does not have any cash equivalents at ~~June~~September 30, 2011 or December 31, 2010.

Marketable Securities

The Company determines the appropriate classification of its investments in equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. Marketable equity securities not classified as held to maturity or as trading are classified as available for sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in stockholders’ equity.

The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market. Warrants to purchase common stock are calculated using the Black-Scholes Option Pricing Model.

F-8

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2011 and December 31, 2010 and

For the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010

Oil and Gas Properties

The Company follows the full cost method of accounting for its investments in oil and gas properties. Under the full cost method, all costs associated with the exploration of properties are capitalized into appropriate cost centers within the full cost pool. Internal costs that are capitalized are limited to those costs that can be directly identified with acquisition, exploration, and development activities undertaken and do not include any costs related to production, general corporate overhead, or similar activities. Cost centers are established on a country by country basis.

F-7

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2011 and December 31, 2010 and

For the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010

Capitalized costs within the cost centers are amortized on the unit of production basis using proved oil and gas reserves. The cost of investments in unproved properties and major development projects are excluded from capitalized costs to be amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such a determination is made, the properties are assessed annually to ascertain whether impairment has occurred. The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that the well is dry.

As of the end of each reporting period, the capitalized costs of each cost center are subject to a ceiling test, in which the costs shall not exceed the cost center ceiling. The cost center ceiling is equal to i) the present value of estimated future net revenues computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus ii) the cost of properties not being amortized; plus iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less iv) income tax effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a cost center, less related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately disclosed during the period in which the excess occurs.

Proceeds received from disposals are credited against accumulated cost except when the sale represents a significant disposal of reserves, in which case a gain or loss is recognized. The sum of net capitalized costs and estimated future development and dismantlement costs for each cost center is depleted on the equivalent unit-of-production method, based on proved oil and gas reserves. Excluded from amounts subject to depletion are costs associated with unevaluated properties.

F-9

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2011 and December 31, 2010 and

For the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010

Asset Retirement Obligations

The Company records asset retirement obligations in the period in which the obligation is incurred and when a reasonable estimate of fair value can be determined. The initial recording of an asset retirement obligation results in an increase in the carrying amount of the related long-lived asset and the creation of a liability. The portion of the asset retirement obligation expected to be realized during the next 12-month period is classified as a current liability, while the portion of the asset retirement obligation expected to be realized during subsequent periods is discounted and recorded at its net present value. The discount factor used to determine the net present value of the Company’s asset retirement obligation is 10%, which is consistent with the discount factor that is applied to oil and gas reserves when performing the periodic ceiling tests.

F-8

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2011 and December 31, 2010 and

For the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010

Changes in the noncurrent portion of the asset retirement obligation due to the passage of time are measured by applying an interest method of allocation. The amount of change is recognized as an increase in the liability and an accretion expense in the statement of operations. Changes in either the current or noncurrent portion of the Company’s asset retirement obligation resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease to the carrying amount of the liability and the related long-lived asset

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1, 2 or 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that are not observable in the market. The fair value measurements of the Company’s financial instruments at ~~June~~September 30, 2011 and December 31, 2010 were as follows:

F-10

	Level 1		Level 2		Level 3		Total
September 30, 2011
Cash	$	1,435,941	$	-	$	-	$	1,435,941
Marketable securities – related party		-		78,095		-		78,095
	$	1,435,941	$	78,095	$	-	$	1,514,036

December 31, 2010
Recurring:
Cash	$	79,768	$	-	$	-	$	79,768
Marketable securities – related party		-		197,453		-		197,453
	$	79,768	$	197,453	$	-	$	277,221
Nonrecurring:
Stock options granted in exchange for intellectual property	$	-	$	1,247,195	$	-	$	1,247,195

F-9

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

	Level 1		Level 2		Level 3		Total
June 30, 2011
Cash	$	3,157,630	$	-	$	-	$	3,157,630
Marketable securities – related party		-		127,426		-		127,426
	$	3,157,630	$	127,426	$	-	$	3,285,056
December 31, 2010
Recurring:
Cash	$	79,768	$	-	$	-	$	79,768
Marketable securities – related party		-		197,453		-		197,453
	$	79,768	$	197,453	$	-	$	277,221
Nonrecurring:
Stock options granted in exchange for intellectual property	$	-	$	1,247,195	$	-	$	1,247,195

The Company uses level 2 inputs to determine the fair value of its marketable securities - related party, which consists of common stock and warrants in an entity which is traded on the Canadian National Stock Exchange. The warrants are valued using the Black-Scholes Option Pricing Model which includes a calculation of historical volatility of the stock. Level 2 inputs were also used to determine the fair value of the Company's stock options which were granted to related parties for intangible oil and gas intellectual property. Recent market transactions were used to determine the market price of the stock and a comparable company was used to calculate volatility.

Convertible Debt

The Company has allocated a portion of the proceeds received from the issuance of convertible debentures to additional paid in capital to recognize the value of the common stock warrants issued in connection with the convertible debentures as well as a beneficial conversion feature that was triggered when the trading value of the Company’s stock first exceeded its conversion price per share. The amount charged to additional paid in capital has been offset by a charge to debt discount. Debt discounts are amortized using the straight line method over the life of the corresponding debt instrument.

F-11

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2011 and December 31, 2010 and

For the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010

Basic and Diluted Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed in the same way as basic earnings per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive. However, diluted loss per common share for the three-month period ended September 30, 2011 and ~~six~~the three-month and nine-month periods ended ~~June~~September 30, 2010 is computed in the same way as basic loss per common share as the inclusion of additional common shares that would be outstanding if all potential common shares had been issued would be anti-dilutive. See Note 8 for the calculation of basic and diluted earnings (loss) per share for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2011 and 2010.

Income Taxes

Deferred income tax assets and liabilities are recognized for the future tax benefits and consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred income tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. Net operating loss carry forwards and other deferred tax assets are reviewed annually for recoverability, and if necessary, are recorded net of a valuation allowance.

F-10

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2011 and December 31, 2010 and

For the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosure of contingent obligations in the financial statements and accompanying notes. The Company’s most significant assumptions are the estimates used in the determination of the deferred income tax asset valuation allowance, the valuation of oil and gas reserves to which the Company owns rights, estimates related to the Company’s asset retirement obligations, the valuation of the warrants held by the Company as investments and the estimates used to determine the Black-Scholes fair value of the stock options issued as consideration for oil and gas intangible assets. The estimation process requires assumptions to be made about future events and conditions, and as such, is inherently subjective and uncertain. Actual results could differ materially from these estimates.

New Accounting Pronouncements

In December 2010, the FASB issued Accounting Standards Update 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The objective of this Update is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations.

F-12

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2011 and December 31, 2010 and

For the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010

The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.

The amendments affect any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis.

In May 2011, the FASB issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. Many of the amendments in this update change the wording used in the existing guidance to better align U.S. generally accepted accounting principles with International Financial Reporting Standards and to clarify the FASB’s intent on various aspects of the fair value guidance. This update also requires increased disclosure of quantitative information about unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. This update is effective for financial statements for reporting periods beginning after December 15, 2011 and should be applied retrospectively. Other than requiring additional disclosures, the adoption of this new guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

~~In June 2011, the FASB issued Accounting Standards Update 2011~~F-05, Comprehensive Income (Topic 220). This new guidance requires the components of net income and other comprehensive income to be either presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. This new guidance eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The Company has adopted the new guidance in its financial statements as of and for the three-month and six-month periods ended June 30, 2011.11

F-13

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220). This new guidance requires the components of net income and other comprehensive income to be either presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. This new guidance eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The Company has adopted the new guidance in its financial statements as of and for the three-month and nine-month periods ended September 30, 2011.

3.	Marketable Securities

As of ~~June~~September 30, 2011 and December 31, 2010, the Company held the following marketable securities that were classified as available for sale:

			Gains in
			Accumulated
	Fair		Other
	Value		Comprehensive
June 30, 2011	Measurement		Income
	Measurement		Income
September 30, 2011
Noncurrent assets:
Common stock and warrants – related party	$	~~127~~78,~~426~~095	$	~~101~~52,~~880~~549
Total available-for-sale marketable securities	$	~~127~~78,~~426~~095	$	~~101~~52,~~880~~549
December 31, 2010
Noncurrent assets:
Common stock and warrants – related party	$	197,453	$	172,818
Total available-for-sale marketable securities	$	197,453	$	172,818

In June 2010, the Company purchased 500,000 units of Passport Energy Inc. (formerly Covenant Resources Inc.) (“Passport”), a Canadian resources company traded on the Canadian National Stock Exchange, at a purchase price of $0.05 per unit. Each unit consisted of one share of common stock and a warrant to purchase an additional share of Passport’s common stock at a purchase price of $0.05 per share. The warrants have a twoF-year life and expire on June 23, 2012. Total consideration paid to acquire the common shares and warrants was $24,635 (CDN$25,000). During 2011, the Company subsequently paid an additional $911 to Passport in connection with the shares. Management considers the investment in Passport as “available for sale” but has no intention of liquidating the investments during the upcoming twelve-month period. Accordingly, the marketable securities have been classified as noncurrent assets. The Passport warrants to purchase common stock are calculated using the Black-Scholes Option Pricing Model, with the following assumptions at June 30, 2011;12

Risk free interest rate		0.23	%
Expected volatility of common stock		111	%
Dividend yield	$	0.00
Expected life of warrants	0.92 years

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2011 and December 31, 2010 and

For the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010

In June 2010, the Company purchased 500,000 units of Passport Energy Inc. (formerly Covenant Resources Inc.) (“Passport”), a Canadian resources company traded on the Canadian National Stock Exchange, at a purchase price of $0.05 per unit. Each unit consisted of one share of common stock and a warrant to purchase an additional share of Passport’s common stock at a purchase price of $0.05 per share. The warrants have a two-year life and expire on June 23, 2012. Total consideration paid to acquire the common shares and warrants was $24,635 (CDN$25,000). During 2011, the Company subsequently paid an additional $911 to Passport in connection with the shares. Management considers the investment in Passport as “available for sale” but has no intention of liquidating the investments during the upcoming twelve-month period. Accordingly, the marketable securities have been classified as noncurrent assets. The Passport warrants to purchase common stock are calculated using the Black-Scholes Option Pricing Model, with the following assumptions at September 30, 2011;

Risk free interest rate		0.17	%
Expected volatility of common stock		123	%
Dividend yield	$	0.00
Expected life of warrants	0.67 years

A marketability discount was applied to the Passport shares and warrants.

At Passport's December 2010 Annual General Meeting, Passport increased its number of directors to eight, one of whom is the Company's President and another of whom is the Company’s Vice President of Operations. As a result, the investment in Passport is classified as a related party asset. Passport's name change occurred in December 2010.

There were no sales of marketable securities during the three-month or nine-month periods ended September 30, 2011 and 2010.

4.	Oil and Gas Properties

As of September 30, 2011 and December 31, 2010, all of the Company's investments in oil and gas properties are divided into two cost pools; one pool that is subject to amortization because drilling activities have commenced and proven reserves have been identified, and one pool that is not subject to amortization because no proven reserves have been assigned to the properties. The two cost pools are further split into cost centers based on the geographical location of the properties included in the pools.

As of September 30, 2011 and December 31, 2010, the net costs included in the Company’s cost centers were as follows:

	September 30, 2011				December 31, 2010
	Amortizable		Non-Amortizable		Amortizable		Non-Amortizable
United States	$	2,832,004	$	2,155,206	$	-	$	2,820,301
Canada		2,162,063		-		965,848		-
Total	$	4,994,067	$	2,155,206	$	965,848	$	2,820,301

The Company has entered into participation agreements in a number exploratory oil and gas properties. Unproven exploratory prospects are excluded from its respective amortizable cost pool until such a time when proven reserves are identified. Each prospect’s costs are transferred into the amortization base on an ongoing (well by well or property by property) basis as the prospect is evaluated and proved reserves are established or impairment is determined.

F-13

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2011 and December 31, 2010 and

For the Three-Month and Nine-Month Periods Ended September 30, 2011 and 2010

Spyglass Property

During the period from February 1, 2010 through June 18, 2010, the Company acquired oil and gas leases covering approximately 6,239 net acres located in Divide County, North Dakota (the “Spyglass Property”). On June 18, 2010, the Company sold 50% of its interest in these oil and gas leases to Eternal Energy Corp. (“Eternal Energy”) and received, in exchange, a 50% working interest in approximately 4,480 acres located in southeastern Saskatchewan, Canada (the “Hardy Property”). The Company reclassified 50% of the then carrying value of its investment in the Spyglass Property to the Hardy Property at the time of the exchange. During the period from June 19, 2010 through May 27, 2011, the Company, along with its working interest partner, Eternal Energy, continued to acquire additional oil and gas leases within the Spyglass Property.

On May 27, 2011, the Company sold half of its working interest in the Spyglass Property to a third party. Because the Company’s interest in the Spyglass Property represented a significant portion of the full cost pool, not subject to amortization, the Company has allocated the total cost of the full cost pool, not subject to amortization, among the individual prospects included within the pool, based on their estimated relative fair market values as of the date that the sale occurred. Net cash consideration received by the Company from the sale totaled $3,823,963, of which, $46,710 was outstanding as of September 30, 2011. The allocated basis attributed to the portion of the Spyglass Property that was sold was $1,692,166, resulting in a gain of $2,131,704 on the transaction.

As of September 30, 2011, the Company still owns an undivided 25% working interest in approximately 185,500 gross acres (2,745 net acres) which is held by approximately 420 leases, with expiration dates ranging from February 2013 to August 2016.

The Company has elected to participate in the drilling of seven successful wells within the Spyglass Property. The Company’s working interests in these wells ranges from 0.17% to 14.25%. Because proven reserves were identified during the period, the Spyglass Property has been re-assigned to the full cost pool that is subject to amortization. The Spyglass Property is evaluated for impairment during each reporting period. There were no impairments evident as of September 30, 2011.

A summary of the Company’s working interest in the Spyglass wells and the status of each well as of September 30, 2011 is as follows:

F-14

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

There were no sales of marketable securities during the six-month period ended June 30, 2011.

Well Name	Operator	Working Interest	Actual or Anticipated Spud Date	Current Status
Wolter 13-9H-163N-100W	SM Energy Company	2.98%	June 26, 2011	Flowing approximately 600 BOPD
Riede 4-14H-163N-100W	SM Energy Company	0.17%	January 30, 2011	Flowing approximately 575 BOPD
Torgeson 1-15H-163N-100W	SM Energy Company	3.60%	March 6, 2011	Flowing approximately 510 BOPD
Bagley 4-30H-163N-100W	SM Energy Company	2.27%	April 3, 2011	Pumping approximately 400 BOPD
Legaard 4-25H-163N-101W	SM Energy Company	2.02%	July 19, 2011	Waiting to be fractured
Nomad 6-7-163N-99W	Samson Resources Company	14.25%	October 26, 2011	Drilling
Thomte 8-5-163N-99W	Samson Resources Company	1.59%	August 22, 2011	Waiting to be fractured

4.Hardy ~~Oil and Gas Properties~~Property

As ofnoted ~~June 30~~above, ~~2011~~on ~~and~~June ~~December 31~~18, 2010, ~~all~~the Company sold 50% of its working interest in the ~~Company's~~Spyglass ~~investments~~Property to Eternal Energy in ~~oil~~exchange ~~and~~for ~~gas~~a ~~properties~~50% ~~are~~working ~~divided~~interest ~~into~~in ~~two~~approximately ~~cost~~4,680 ~~pools;~~net acres located in Southeastern Saskatchewan, which included related equipment valued at approximately $238,681. At the time, the Hardy Property contained one ~~pool~~existing oil well (the Hardy 7-9 well) that, isat ~~subject~~acquisition, was shut in due to ~~amortization~~mechanical ~~because~~issues. As ~~drilling~~a ~~activities~~result, ~~have~~the ~~commenced~~Company ~~and~~reclassified ~~proven~~$766,620 ~~reserves~~(half ~~have~~of ~~been~~the ~~identified~~carrying value of its Spyglass Prospect at that time) to the newly acquired Hardy Property, ~~and~~which ~~one~~is part of the full cost pool that is ~~not~~ subject to amortization. The ~~because~~Company noand ~~proven~~Eternal ~~reserves~~Energy have ~~been~~agreed ~~assigned~~that toEternal ~~the~~Energy ~~properties~~will oversee all future exploration and operational activities associated with their shared acreage. The ~~two~~Company ~~cost~~is ~~pools~~obligated ~~are~~to ~~further~~pay ~~split~~50% ~~into~~of the cost ~~centers~~of ~~based~~any onexploration ~~the~~or ~~geographical~~development ~~location~~costs ofincurred ~~the~~for ~~properties~~wells ~~included~~ in ~~the~~which ~~pools~~it elects to participate.

AsDuring July 2010, Eternal Energy performed a workover and recompletion of ~~June~~the 30Hardy 7-9 well at an aggregate cost of $475,274. The ~~2011~~Company’s ~~and~~portion ~~December~~of 31the recompletion cost was $237,637. The well was returned to production in September 2010. In January 2011, the ~~net~~Hardy ~~costs~~7-9 ~~included~~well was taken off of production due to a parted rod string. The well was returned to production in ~~the~~March ~~Company’s~~2011, ~~cost~~after ~~centers~~repairs were asmade ~~follows:~~to replace the parted rod string. However, the well was again shut in during May and June 2011 due to weather conditions in the area.

	June 30, 2011				December 31, 2010
	Amortizable		Non-Amortizable		Amortizable		Non-Amortizable
United States	$	-	$	3,337,761	$	-	$	2,820,301
Canada		1,977,937		-		965,848		-
Total	$	1,977,937	$	3,337,761	$	965,848	$	2,820,301

Glacier Prospect

In January 2011, the Company acquired an undivided 66.67% working interest in approximately 47,392 net acres located in Toole Country, Montana (the “Glacier Prospect”) for cash consideration of $1,195,624. Subsequently, the Company sold one-half of its working interest to FX Energy, Inc. (“FX Energy”) for $597,812, which represents 50% of the original purchase price. The Company has recorded a receivable from FX for this amount as of June 30, 2011.

As of June 30, 2011, the Company owns a 33% undivided working interest in approximately 63,630 gross acres (21,210 net acres) that is held by approximately 400 leases, with expiration dates ranging from May 2012 to June 2015, ratably.

F-15

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

~~Because~~On noMay ~~proven~~2, ~~reserves~~2011, ~~have~~the ~~yet~~Company ~~been~~and ~~identified,~~its ~~the~~working ~~Glacier~~interest ~~Prospect~~partner, ~~has~~Eternal ~~been~~Energy, ~~assigned~~entered tointo ~~the~~a ~~full~~farm-out ~~cost~~agreement ~~pool~~with ~~that~~Passport isEnergy, ~~not~~whereby ~~subject~~Passport agreed to ~~amortization~~fund 38. ~~Management~~5% isof ~~currently in~~ the ~~process~~drilling, ofcompletion ~~developing~~and ~~its~~equipping ~~exploration~~costs ~~strategy~~of ~~relative~~up to ~~the~~two ~~Glacier~~future ~~Prospect. The~~wells ~~Company~~located iswithin ~~evaluating~~ the ~~results~~Hardy ofProperty ~~nearby wells drilled by other companies~~ in ~~order~~exchange tofor ~~make~~ a ~~determination~~25% onworking ~~the~~interest ~~future~~in of the ~~Glacier~~each ~~Prospect~~well. The ~~Glacier~~remaining ~~Prospect~~working isinterest ~~evaluated~~will ~~for~~be ~~impairment~~shared ~~during~~equally ~~each~~between ~~reporting~~the ~~period. There~~Company ~~were~~and noEternal ~~impairments evident as of June 30, 2011~~Energy.

~~Spyglass~~During ~~Prospect~~May and June 2011, the Company, along with its working interest partners, drilled and completed an offset well within the Hardy Property (the “Hardy 4-16” well). The well was fracture stimulated in July 2011 and placed on production during September 2011.

~~During~~The ~~the period from February 1, 2010 through June 18, 2010, the Company acquired oil and gas leases covering approximately 6,239~~ net ~~acres~~capitalized ~~located~~cost ~~in Divide County, North Dakota (the “Spyglass Prospect”). On June 18, 2010, the Company sold 50%~~ of its interest in these oil and gas leases to Eternal Energy Corp. (“Eternal Energy”) and received, in exchange, a 50% working interest in approximately 4,480 acres located in southeastern Saskatchewan, Canada (the “Hardy Property~~”). The~~ ~~Company~~as ~~reclassified 50%~~ of ~~the~~September ~~then carrying value of its investment in the Spyglass Prospect to the Hardy Prospect at the time of the exchange. During the period from June 19~~30, ~~2010 through May 27,~~ 2011, ~~the~~and ~~Company,~~December ~~along with its working interest partner~~31, ~~Eternal~~2010 ~~Energy,~~is ~~continued~~summarized ~~to acquire additional oil and gas leases within the Spyglass Prospect.~~below:

On May 27, 2011, the Company sold half of its working interest in the Spyglass Prospect to a third party. Because the Company’s interest in the Spyglass Prospect represented a significant portion of the full cost pool, not subject to amortization, the Company has allocated the total cost of the full cost pool, not subject to amortization, among the individual prospects included within the pool, based on their estimated relative fair market values as of the date that the sale occurred. Net cash consideration received from the sale totaled $3,777,793. The allocated basis attributed to the portion of the Spyglass Prospect that was sold was $1,692,166, resulting in a gain of $2,085,627 on the transaction.

	September 30,			December 31,
	2011			2010
Acquisition costs	$	785,652		$	785,652
Development costs		1,545,397			293,492
		2,331,049			1,079,444
Cumulative depletion		(168,986	)		(113,596	)
Net capitalized cost	$	2,162,063		$	965,848

AsUsing the units-of-production ~~June~~method ~~30,~~to ~~2011~~calculate depletion expense associated with its producing properties, the Company ~~still~~recognized ~~owns~~depletion anexpense ~~undivided~~totaling ~~25%~~$26,908 ~~working~~and ~~interest~~$55,390 infor ~~approximately~~the ~~68,962~~three-month ~~gross~~and ~~acres~~nine-month (8periods ended September 30,~~948~~ ~~net~~2011. The ~~acres)~~Company ~~which~~did isnot ~~held~~recognize byany ~~approximately~~depletion ~~783~~expense ~~leases,~~during ~~with~~the ~~expiration~~comparable ~~dates~~periods ~~ranging~~in ~~from~~2010 ~~February~~because ~~2013~~it tohad ~~August~~no ~~2016,~~producing ~~ratably~~wells at the time.

~~Because~~As noof ~~proven~~September ~~reserves~~30, ~~have yet been identified~~2011, the ~~Spyglass~~Company ~~Prospect~~owns ~~has~~a ~~been~~50% ~~assigned~~working tointerest ~~the full cost pool that is not subject to amortization. Management is currently~~ in ~~the~~approximately ~~process~~4,680 ofgross ~~developing~~acres ~~its~~(4,680 ~~exploration~~net ~~strategy relative to the Spyglass Prospect~~acres). The ~~Company~~acreage is ~~evaluating~~secured ~~the results of nearby wells drilled~~ by ~~other~~6 ~~companies~~leases, ineach ~~order to make a determination on the future~~ of ~~the~~which ~~Spyglass Prospect. The Spyglass Prospect~~ is ~~evaluated~~scheduled ~~for~~to ~~impairment~~expire ~~during~~on ~~each~~April ~~reporting period. There were no impairments evident as of June 30~~1, ~~2011~~2014.

Well Summary

The following table summarizes the Company’s wells and drilling activity for the three-month periods ended September 30, 2011 and 2010:

F-16

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

West Spyglass Prospect

	2011				2010
	U.S.		Canada		U.S.		Canada
Exploratory wells:

Beginning of period		-		-		-		-
Purchased / acquired		-		-		-		-
Drilled		-		-		-		-
Abandoned		-		-		-		-
End of period		-		-		-		-

Development wells:

Beginning of period		4		2		-		-
Purchased / acquired		-		-		-		1
Drilled		3		-		-		-
Abandoned		-		-		-		-
End of period		7		2		-		1

InThe ~~June,~~following ~~2011,~~table ~~the~~summarizes ~~Company began acquiring interests in oil and gas leases located in an area adjacent to~~ the ~~existing Spyglass Prospect. The~~ Company’s ~~management~~wells ~~refers~~and todrilling ~~the~~activity ~~adjacent~~for ~~acreage as~~ the ~~West~~nine-month ~~Spyglass~~periods ~~Prospect. As~~ended ofSeptember ~~June~~ 30, 2011, the Company owns a 100% working interest in approximately 7,467 gross acres (1,120 net acres) located within the West Spyglass Prospect. The net acres are held by 21 leases, with expiration dates ranging from April 2014 to April 2016. The Company’s management is currently evaluating this prospect. No formal determination of the ultimate viability of this prospect is expected during the next twelve months. Management has reviewed the carrying value of this property and ~~determined that no impairment exists as of June 30, 2011.~~2010:

Musta Prospect

	2011				2010
	U.S.		Canada		U.S.		Canada
Exploratory wells:

Beginning of period		-		-		-		-
Purchased / acquired		-		-		-		-
Drilled		-		-		-		-
Abandoned		-		-		-		-
End of period		-		-		-		-

Development wells:

Beginning of period		-		1		-		-
Purchased / acquired		-		-		-		1
Drilled		7		1		-		-
Abandoned		-		-		-		-
End of period		7		2		-		1

~~During~~The ~~December 2009 and January 2010, the~~ Company ~~incurred~~did ~~$10,995 of brokerage costs related to potential lease acquisitions, in Divide County, North Dakota (the “Musta Prospect”). As of May 27, 2011, the Company has~~ not ~~yet~~drill ~~entered into~~ any ~~oil~~dry ~~and~~exploratory ~~gas~~or ~~leases~~developmental ~~within~~wells ~~the~~during ~~Musta Prospect. As part of~~ the ~~reallocation~~three-month ofand ~~total~~nine-month ~~costs~~periods ~~included~~ended inSeptember ~~the full cost pool~~30, ~~not~~2011 ~~subject~~and ~~to amortization, associated with the partial sale of the Company’s interest in the Spyglass Prospect, the estimated fair market value assigned to the Musta Prospect was zero~~2010. ~~Management considers the Musta Prospect to be fully impaired as of June 30, 2011.~~

Mississippi and Texas Prospects

In January 2010, the Company entered into two assignment agreements with Murrayfield Limited, a United Kingdom company, pursuant to which the Company paid $150,000 in cash to acquire a 15% working interest in a contemplated well located in Wilkinson County, Mississippi (the “Mississippi Prospect”) and $137,500 in cash to acquire a 12.5% working interest in an oil and gas lease located in Willacy County, Texas (the “Texas Prospect”). In June 2010, the Company resold its interest in the Mississippi Prospect to the original seller. Net proceeds from the sale totaled $144,063, which represent the original purchase price of $150,000, less preliminary drilling costs incurred to date of $5,937.

To date, no drilling activities have occurred within the Texas Prospect nor are any drilling plans being considered in the near future. As part of the reallocation of total costs included in the full cost pool, not subject to amortization, associated with the partial sale of the Company’s interest in the Spyglass Prospect, the estimated fair market value assigned to the Texas Prospect was zero. Management considers the Texas Prospect to be fully impaired as of June 30, 2011.

F-17

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

~~Sidney~~Exploratory ~~North Prospect~~Prospects

InGlacier ~~2010, the Company acquired oil and gas leases on approximately 2,621 gross (624 net acres located in Richland County, Montana (the “Sidney North~~ Prospect”) at an aggregate cost of $215,041. The acreage is held by approximately 24 leases, with expiration dates ranging from July 2013 to October 2015, ratably. The Company’s management is currently evaluating this prospect. No formal determination of the ultimate viability of this prospect is expected during the next twelve months. Management has reviewed the carrying value of this property and determined that no impairment exists as of June 30, 2011.

~~Hardy~~In ~~Property~~January 2011, the Company acquired an undivided 66.67% working interest in approximately 47,392 net acres located in Toole Country, Montana (the “Glacier Prospect”) for cash consideration of $1,195,624. Subsequently, the Company sold one-half of its working interest to FX Energy, Inc. (“FX Energy”) for $597,812, which represents 50% of the original purchase price.

As ~~noted~~of ~~above,~~September ~~on June 18~~30, ~~2010~~2011, the Company ~~sold~~owns ~~50% of its working interest in the Spyglass Prospect to Eternal Energy in exchange for~~ a 5033% undivided working interest in approximately 463,~~480~~630 ~~net~~gross acres ~~located in Southeastern Saskatchewan~~ (~~the “Hardy Property”)~~21,210 ~~which~~net ~~included related equipment valued at approximately $238,681. At the time, the Hardy Property contained one existing oil well (the Hardy 7-9 well~~acres) that, atis ~~acquisition,~~held ~~was~~by ~~shut~~approximately in400 ~~due to mechanical issues. As a result~~leases, the Company reclassified $766,620 (half of the carrying value of its Spyglass Prospect at that time) to the newly acquired Hardy Property, which is part of the full cost pool that is subject to amortization. The Company and Eternal Energy have agreed that Eternal Energy will oversee all future exploration and operational activities associated with ~~their~~expiration ~~shared~~dates ~~acreage.~~ranging ~~The~~from ~~Company~~May is2012 ~~obligated~~ to ~~pay~~June ~~50% of the cost of any exploration or development costs incurred for wells in which it elects to participate~~2015.

~~During~~Because ~~August~~no ~~and~~proven ~~September~~reserves ~~2010,~~have ~~Eternal~~yet ~~Energy~~been ~~performed~~identified, ~~a workover and recompletion of~~ the ~~Hardy~~Glacier ~~7-9~~Prospect ~~well~~has atbeen anassigned ~~aggregate~~to ~~cost of $475,274. The Company’s portion of~~ the ~~recompletion~~full cost ~~was~~pool ~~$237,637.~~that ~~The~~is ~~well~~not ~~was~~subject ~~returned~~ to ~~production in September 2010~~amortization. Management Inis ~~January~~currently ~~2011,~~in the ~~Hardy~~process ~~7-9~~of ~~well~~developing ~~was~~its ~~taken~~exploration ~~off~~strategy ofrelative ~~production due~~ to athe ~~parted~~Glacier ~~rod string~~Prospect. The ~~well~~Company ~~was~~is ~~returned~~evaluating ~~to production in March 2011, after repairs were made to replace~~ the ~~parted~~results ~~rod~~of ~~string.~~nearby ~~However,~~wells ~~the~~drilled ~~well~~by ~~was~~other ~~again~~companies ~~shut~~ in ~~during~~order ~~May and June 2011 due~~ to ~~weather~~make ~~conditions~~a indetermination on the ~~area.~~future ~~The Company’s share~~ of the ~~oil~~Glacier ~~and~~Prospect. The ~~gas~~Glacier ~~sales~~Prospect ~~generated~~is byevaluated ~~the~~for ~~Hardy~~impairment ~~7-9 well~~ during ~~the~~each ~~three-month~~reporting ~~and~~period. There ~~six-month~~were ~~periods~~no ~~ended~~impairments ~~June~~evident ~~30,~~as ~~2011~~of ~~totaled~~September ~~$10~~30,~~437~~ ~~and $46,477, respectively~~2011.

OnWest ~~May~~Spyglass 2, 2011, the Company and its working interest partner, Eternal Energy, entered into a farm-out agreement with Passport Energy, whereby Passport agreed to fund 38.5% of the drilling, completion and equipping costs of up to two future wells located within the Hardy Property in exchange for a 25% working interest in the each well. The remaining working interest will be shared equally between the Company and Eternal Energy.Prospect

~~During~~In ~~May and~~ June, 2011, the Company, ~~along~~began ~~with~~acquiring ~~its~~interests ~~working~~in ~~interest~~oil ~~partners, drilled~~ and ~~completed~~gas anleases ~~offset~~located ~~well~~in ~~within~~an ~~the~~area ~~Hardy~~adjacent ~~Property~~to (the ~~“Hardy~~existing ~~4-16”~~Spyglass ~~well) at an aggregate cost of approximately $1,538,125~~Prospect. The Company’s ~~share~~management ofrefers ~~this~~to ~~cost~~the isadjacent ~~$472,973.~~acreage ~~The~~as ~~well was fracture stimulated in July 2011. The Company is currently evaluating~~ the ~~results~~West ofSpyglass ~~the fracture stimulation~~Prospect.

As of September 30, 2011, the Company owns a 50% working interest in approximately 139,194 gross acres (3,993 net acres) located within the West Spyglass Prospect. The net acres are held by 82 leases, with expiration dates ranging from April 2014 to April 2016. The Company’s management is currently evaluating this prospect. No formal determination of the ultimate viability of this prospect is expected during the next twelve months. Management has reviewed the carrying value of this property and determined that no impairment exists as of September 30, 2011.

Musta Prospect

During December 2009 and January 2010, the Company incurred $10,995 of brokerage costs related to potential lease acquisitions, in Divide County, North Dakota (the “Musta Prospect”). The Company has not yet entered into any oil and gas leases within the Musta Prospect. As part of the reallocation of total costs included in the full cost pool, not subject to amortization, associated with the partial sale of the Company’s interest in the Spyglass Prospect, the estimated fair market value assigned to the Musta Prospect was zero. Management considers the Musta Prospect to be fully impaired as of September 30, 2011.

F-18

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

~~The~~Mississippi ~~net capitalized cost of the Hardy Property as of June 30, 2011~~ and ~~December~~Texas ~~31, 2010 is summarized below:~~Prospects

	June 30,			December 31,
	2011			2010
Acquisition costs	$	785,652		$	785,652
Development costs		1,334,364			293,492
		2,120,016			1,079,444
Cumulative depletion		(142,079	)		(113,596	)
Net capitalized cost	$	1,977,937		$	965,848

~~Using~~To date, no drilling activities have occurred within the ~~units-of-production~~Texas ~~method~~Prospect tonor ~~calculate~~are ~~depletion~~any ~~expense~~drilling ~~associated~~plans ~~with~~being ~~its~~considered ~~producing~~in ~~properties,~~the near future. As part of the ~~Company~~reallocation ~~recognized~~of ~~depletion~~total ~~expense~~costs ~~totaling~~included ~~$14~~in the full cost pool,~~278~~ ~~and~~not ~~$28~~subject to amortization,~~482~~ ~~for~~associated with the ~~three-month~~partial ~~and~~sale ~~six-month~~of ~~periods~~the ~~ended~~Company’s ~~June~~interest ~~30,~~in ~~2011. The~~the ~~Company~~Spyglass ~~did~~Prospect, ~~not~~the ~~recognize~~estimated ~~any~~fair ~~depletion~~market ~~expense~~value ~~during~~assigned to the ~~comparable~~Texas ~~periods~~Prospect inwas ~~2010~~zero. Management ~~because~~considers itthe ~~had~~Texas noProspect ~~producing~~to ~~wells~~be atfully ~~the~~impaired ~~time~~as of September 30, 2011.

AsSidney ofNorth June 30, 2011, the Company owns a 50% working interest in approximately 4,680 gross acres (4,280 net acres) held by leases. The acreage is secured by 6 leases, each of which is scheduled to expire on April 1, 2014. The Hardy Property represents the only property that is included in the portion of the Company’s full cost pool that is subject to amortization.Prospect

~~Well~~In ~~Summary~~2010, the Company acquired a 100% working interest in oil and gas leases on approximately 1,680 gross (399 net acres located in Richland County, Montana (the “Sidney North Prospect”) at an aggregate cost of $215,041. The acreage is held by approximately 13 leases, with expiration dates ranging from July 2013 to October 2015, ratably. The Company’s management is currently evaluating this prospect. No formal determination of the ultimate viability of this prospect is expected during the next twelve months. Management has reviewed the carrying value of this property and determined that no impairment exists as of September 30, 2011.

~~The~~Oil ~~following table summarizes the Company’s wells~~ and ~~drilling~~Gas ~~activity~~Concepts ~~for~~Purchased ~~the~~with ~~three-month~~Stock ~~periods ended June 30, 2011 and 2010:~~Options

	2011				2010
Exploratory wells:	U.S.		Canada		U.S.		Canada
Beginning of period		-		-		-		-
Purchased / acquired		-		-		-		-
Drilled		-		-		-		-
Abandoned		-		-		-		-
End of period		-		-		-		-

On December 30, 2010, the Company granted options to purchase 2,141,842 shares of its common stock to four individuals, two of which are the Company’s officers, in connection with their contribution of certain intellectual property related to exploratory opportunities and transactions to the Company. The intellectual property was initially assigned a value of $1,247,195, which equaled the value of the options granted as calculated using the Black-Scholes model. The value of the contributed oil and gas concepts has subsequently been reassessed in connection with the reallocation of total costs included in the full cost pool, not subject to amortization, associated with the partial sale of the Company’s interest in the Spyglass Prospect.

F-19

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

	2011				2010
Development wells:	U.S.		Canada		U.S.		Canada
Beginning of period		-		1		-		-
Purchased / acquired		-		-		-		1
Drilled		-		1		-		-
Abandoned		-		-		-		-
End of period		-		2		-		1

The following table summarizes the Company’s wells and drilling activity for the six-month periods ended June 30, 2011 and 2010:

	2011				2010
Exploratory wells:	U.S.		Canada		U.S.		Canada
Beginning of period		-		-		-		-
Purchased / acquired		-		-		-		-
Drilled		-		-		-		-
Abandoned		-		-		-		-
End of period		-		-		-		-

	2011				2010
Development wells:	U.S.		Canada		U.S.		Canada
Beginning of period		-		1		-		-
Purchased / acquired		-		-		-		1
Drilled		-		1		-		-
Abandoned		-		-		-		-
End of period		-		2		-		1

The Company did not drill any dry exploratory or developmental wells during the three-month and six-month periods ended June 30, 2011 and 2010.

Oil and Gas Concepts Purchased with Stock Options

F-20

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2011 and December 31, 2010 and

For the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010

5.	Convertible Debenture

On April 15, 2010, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold a $1 million Secured, Convertible Debenture to a third party investor. The Debenture bears interest at a rate of 8% per annum. Interest expense related to the Debenture totaled $2021,~~000~~230 and $4061,~~000~~230 for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2011, respectively. Accrued interest payable as of ~~June~~September 30, 2011 and December 31, 2010 totaled $4020,000 and $40,000, respectively. The Debenture’s original maturity date was April 15, 2011. On February 24, 2011, the lender extended the maturity date to April 15, 2012. Accordingly, the Convertible Debenture is presented as a current and non-current liability on the Company’s balance sheets as of ~~June~~September 30, 2011 and December 31, 2010, respectively. Interest is payable on a quarterly basis, either in cash or through the issuance of additional shares of the Company’s common stock at an initial conversion price of $1.125 per share, or a combination thereof. The Debenture is secured by substantially all of the Company’s existing assets.

At any time, or from time to time, the holder of the Debenture may elect to convert all or a portion of the Debenture into shares of the Company’s common stock. The initial conversion price was subject to reduction in the event that the Company subsequently sells, or grants any option to purchase, shares of the Company’s common stock at an effective price that is less than the initial conversion price. The initial conversion price was also subject to reduction in the event that the Company pays dividends, declares a stock split, or engages into a merger transaction.

Attached to the convertible debentures were 416,667 warrants to purchase shares of the Company’s common stock at an initial exercise price of $1.20 per share (Note 9). The initial exercise price was reduced from $1.20 per share to $0.60 per share as a result of a private placement commitment that was received in December 2010, which also increased the number of exercisable warrants from 416,667 to 833,333.

The Debenture may not be converted if, immediately after, the conversion would result in the holder of the Debenture possessing a beneficial ownership interest in excess of 4.99% of the Company’s then outstanding common shares. Upon providing 60 days prior written notice, the holder of the Debenture may increase or decrease such ownership limit, but in no instance can the ownership limit exceed 9.99% of the Company’s outstanding shares.

Because the initial trading value of the Company’s stock on the date the Debentures were issued was less than the initial conversion price, the Debentures were not deemed to contain a beneficial conversion feature at the time the Debentures were initially sold.

~~F-21~~A portion of the net proceeds from the issuance of the Debenture was allocated to the warrants and recorded as an increase to additional paid in capital. Accordingly, the Company recorded an initial debt discount in the amount of $280,511. The initial debt discount was being accreted using the straight line method over the original life of the Debenture.

F-20

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

AIn ~~portion~~December of2010, the ~~net~~Company ~~proceeds~~received ~~from~~an ~~the~~irrevocable ~~issuance~~commitment ofto ~~the~~purchase ~~Debenture~~5,833,333 ~~was~~shares ~~allocated~~of toits ~~the~~common ~~warrants~~stock ~~and~~at ~~recorded~~a asprice anof ~~increase~~$0.60 toper ~~additional~~share ~~paid~~(see inNote ~~capital~~9). Also ~~Accordingly~~in December 2010, the Company ~~recorded~~granted an2,141,842 ~~initial~~options ~~debt~~to ~~discount~~purchase inshares of the ~~amount~~Company’s ofcommon ~~$280,511. The~~stock ~~initial~~to ~~debt~~certain ~~discount~~consultants isand ~~being~~members ~~accreted~~of ~~using~~ the ~~straight~~Company’s ~~line~~management, ~~method~~in ~~over~~exchange for the ~~original~~contribution ~~life~~ of ~~the~~certain ~~Debenture~~exploratory concepts. The ~~Company~~terms ~~recognized~~of ~~amortization~~the ~~expense~~option ofagreements ~~$35,065~~stipulate ~~and~~an ~~$105,194~~exercise ~~during~~price ~~the~~of ~~three-month~~$0.60 ~~and~~per ~~six-month~~share. At ~~periods~~that ~~ended~~time, ~~June~~the ~~30,~~initial ~~2011~~conversion ~~related~~price toassociated with the ~~additional~~debenture ~~debt~~was ~~discount~~reduced. ~~Debt~~The ~~discount~~adjusted ~~accretion~~conversion ~~for~~price of the ~~three-month~~Debenture ~~and~~is ~~six-month~~$0.60 ~~periods~~per ~~ended~~share ~~June~~as ~~30,~~of ~~2010~~September ~~was $11~~30,~~688~~ 2011.

InThese ~~December~~two ~~2010,~~events triggered the ~~Company~~reduction ~~received~~of anthe ~~irrevocable~~initial ~~commitment~~conversion toprice ~~purchase 5,833,333 shares~~ of ~~its~~the ~~common~~Debentures ~~stock~~from at$1.125 aper ~~price~~share ofto $0.60 per share ~~(see Note 9)~~. ~~Also~~As ina ~~December 2010~~result, ~~the~~it ~~Company~~was ~~granted~~determined ~~2,141,842~~that ~~options~~the toDebentures ~~purchase~~included ~~shares~~a ofbeneficial ~~the~~conversion ~~Company’s~~feature ~~common~~as ~~stock~~of toDecember ~~certain~~31, ~~consultants~~2010 and, ~~members~~accordingly, of the Company’s ~~management,~~recorded inan ~~exchange~~additional ~~for~~debt ~~the~~discount ~~contribution~~related ofto ~~certain~~the ~~exploratory~~Debentures ~~concepts. The~~in ~~terms of~~ the ~~option~~amount ~~agreements stipulate an exercise price~~ of $0875,000.~~60 per share.~~ AtThe ~~that~~additional ~~time,~~debt ~~the~~discount ~~initial~~is ~~conversion~~being ~~price~~accreted ~~associated~~using ~~with~~ the ~~debenture~~straight ~~was~~line ~~reduced. The~~method ~~adjusted~~over ~~conversion~~the ~~price~~extended life of the Debenture ~~is $0~~.~~60 per share as of June 30, 2011.~~

~~These~~The ~~two~~Company ~~events~~recognized ~~triggered~~amortization ~~the~~expense ~~reduction~~ of ~~the initial conversion price of the Debentures from~~ $~~1.125~~141,580 ~~per~~and ~~share to~~ $~~0.60 per share. As a result~~571,313 itduring ~~was determined that~~ the ~~Debentures~~three-month ~~included~~and anine-month ~~beneficial~~periods ~~conversion~~ended ~~feature~~September ~~as of December 31~~30, ~~2010~~2011 ~~and, accordingly, the Company recorded an additional debt discount~~ related to the ~~Debentures~~debt ~~in the amount of $875,000~~discounts. ~~The~~Debt ~~Company recognized debt~~ discount accretion ~~expense~~for ~~of $163,166 and $324,539 during~~ the three-month and ~~six~~nine-month periods ended ~~June~~September 30, ~~2011~~2010 ~~related~~was to$70,128 ~~the~~and ~~additional~~$81,816, ~~debt discount~~respectively.

As of September 30, 2011 and December 31, 2010, the Company has reserved 1,666,667 shares of its common stock in the event that the Debenture is converted. Because the adjusted conversion price is less than the trading value of the Company’s stock as of ~~June~~September 30, 2011, the amount by which the Debenture’s “if converted value” exceeded its principal amount was $1500,~~250,~~000 as of ~~June~~September 30, 2011.

As of June 30, 2011 and December 31, 2010, the Company has reserved 1,666,667 shares of its common stock in the event that the Debenture is converted.

6.	Asset Retirement Obligations

The Company has recorded estimated asset retirement obligations for the future plugging and abandonment of the Hardy 7-9 and Hardy 4-16 wells. As of ~~June~~September 30, 2011, the discounted value of the Hardy asset retirement obligations is $16,~~473~~888. The Company recognized accretion expense of $~~358~~415 and $~~707~~1,122 for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2011 associated with the Hardy asset retirement obligations. No accretion expense was recognized during the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2010 as the Company had not yet restored the Hardy 7-9 well to production nor recorded an asset retirement obligation associated with the well. The projected plugging dates for the Hardy 7-9 and Hardy 4-16 wells are December 2020 and June 2036, respectively.

F-2221

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

7.	Commitments and Contingencies

Drilling Commitments

As of ~~June~~September 30, 2011, the Company owned a 50% working interest in the Hardy Property. Accordingly, the Company may elect to participate in the drilling of exploratory wells on the property. As discussed in Note 4, the Company and its working interest partner, Eternal Energy, entered into a farm-out agreement with Passport whereby Passport agreed to fund 38.5% of the drilling, completion and abandonment costs of up to two future wells to be located within the Hardy Property, in exchange for a 25% working interest in the completed wells. The remaining working interest in the wells will be shared equally by the Company and Eternal Energy. The first well to be drilled under the Participation Agreement was the Hardy 4-16 well. Plans are in place to commence drilling of the second well within the Hardy Prospect. The current estimate of drilling and completion costs of the second well is $3,200,000, of which the Company, through its participation election, would be obligated to pay approximately $984,000 should it elect to participate in such well.

Stock Issuances

As discussed in Note 5, the Company has reserved 1,666,667 shares of its common stock in the event that the Debenture is converted.

8.	Earnings (Loss) Per Share

The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings (loss) per share for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2011 and 2010:

	For the Three-Month						For the ~~Six~~Nine-Month
	Period Ended June 30,						Period Ended June 30,
	Period Ended September 30,						Period Ended September 30,
	2011			2010			2011		2010
Net income (loss)	$	1(329,~~438,073~~574	)	$	(~~134~~278,~~888~~122	)	$	~~790~~460,~~058~~484	$	(~~208~~486,~~742~~864	)
Weighted-average number of common shares outstanding		43,~~231~~374,~~357~~158			4437,~~913~~540,~~334~~000			4142,~~299~~001,~~259~~576		4437,~~376~~185,~~889~~000
Incremental shares from the assumed exercise of dilutive stock options (a)		~~1,344,027~~-			-			1,~~375~~257,~~813~~905		-
Diluted common shares outstanding		4443,~~575~~374,~~384~~158			4437,~~913~~540,~~334~~000			4243,~~675~~259,~~072~~481		4437,~~376~~185,~~889~~000
Basic earnings (loss) per share	$	(0.0301	)	$	(0.0001	)	$	0.0201	$	(0.0001	)
Diluted earnings (loss) per share	$	(0.0301	)	$	(0.0001	)	$	0.0201	$	(0.0001	)

F-2322

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

~~(a)~~ In periods where the Company incurs a loss, potentially dilutive securities are not included in the computation of diluted net loss per share as their effect would have been anti-dilutive. The following securities were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive:

	June 30,
	For the Three-Month				For the Nine-Month
	2010
	Period Ended September 30,				Period Ended September 30,
Stock options		-
	2011		2010		2011		2010
Convertible debentures		-
Stock options		2,142,842		-		-		-
Convertible debentures		1,666,667		1,666,667		-		1,666,667

9.	Equity Transactions

Stock Splits

On January 12, 2011, the Company’s board of directors approved a reverse split of the Company’s common stock on a 1 new share for 1.5 old share basis. As a result, the Company’s authorized common shares decreased from 150,000,000 to 100,000,000. Par value remained unchanged.

Private Placements

In January 2010, the Company issued an aggregate of 6,666,667 restricted shares of its common stock at a price of $0.0015 to four individuals in a private transaction. Two of the individuals are our sole officers at ~~June~~September 30, 2011. Proceeds received from the sale of the stock totaled $10,000.

Also in January 2010, the Company issued 706,667 restricted shares of the Company’s common stock at a price of $1.125 per share in a private transaction. Proceeds received from the sale of the stock totaled $795,000.

On December 14, 2010, the Company received an irrevocable commitment from a third party to purchase 5,833,333 shares of the Company’s common stock at a price of $0.60 per share, resulting in aggregate funds to be received of $3,500,000. The Company collected $3,166,667 of subscriptions receivable during February and March 2011 and, as a result, issued 5,~~277~~278,~~778~~602 shares of its common stock. As discussed in Note 10, the Company collected the remaining $333,333 of stock subscriptions receivable in April 2011. As a result, the Company has presented stock subscriptions receivable of $2,666,667 as a current asset on its December 31, 2010 balance sheet, and $833,333 as a reduction of stockholder’s equity in its December 31, 2010 balance sheet.

F-2423

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

Issuance of Warrants

In connection with the sale of the Convertible Debenture (Note 5), the Company granted to the purchaser of the Debenture warrants to purchase up to 416,667 shares of the Company’s common stock at an initial exercise price of $1.20 per share. The warrants had an expiration date of April 15, 2012.

The initial exercise price of the warrants was subject to reduction in the event that the Company subsequently sold, or granted any option to purchase, shares of the Company’s common stock at an effective price that is less than the initial conversion price. The initial conversion price was also subject to a reduction in the event that the Company should issue dividends, declare a stock split, or engage in a merger transaction.

As discussed in Note 5, the number of warrants outstanding was increased from 416,667 to 833,333 in December 2010 as a result of the reduction of the initial exercise price of $1.20 per share to an adjusted exercise price of $0.60 per share. On December 15, 2010, the holder of the warrants fully exercised the warrants and received 833,333 shares of the Company’s common stock. The Company received gross proceeds of $500,000 from the exercise of the warrants.

A summary of warrant activity for the ~~six~~nine-month period ended ~~June~~September 30, 2011 and the ~~eight-month~~year ~~period~~ ended December 31, 2010 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contract		Intrinsic
	Warrants			Price		Term		Value
Outstanding at April 30, 2010		-			-		-		-
Outstanding at December 31, 2009		-			-		-		-
Issued		416,667		$	1.20	2 years			-
Increase due to reduction in exercise price		416,666		$	0.60		-		-
Exercised		(833,333	)	$	0.60		-		-
Outstanding at December 31, 2010		-			-		-		-
Issued		-		$	-		-		-
Exercised		-		$	-		-		-
Outstanding at June 30, 2011		-		$	-		-	$	-
Outstanding at September 30, 2011		-		$	-		-	$	-

FThe assumptions used in the Black-25Scholes Option Pricing Model for the warrants granted during the year ended December 31, 2010 were as follows:

F-24

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

The assumptions used in the Black-Scholes Option Pricing Model for the warrants granted during the year ended December 31, 2010 were as follows:

Risk-free interest rate		1.04	%
Expected volatility of common stock		250	%
Dividend yield	$	0.00
Expected life of warrants	2 years
Weighted average fair market value of warrants granted	$	0.62

Issuance of Stock Options

On December 30, 2010, the Company granted options to purchase 2,141,842 shares of its common stock to four individuals in connection with their contribution of certain intellectual property related to exploratory opportunities and transactions to the Company. The options have a five-year life, vested immediately and have an exercise price of $0.60 per share. The options expire on December 30, 2015. The intellectual property was valued at $1,247,195, which equals the value of the options granted as calculated using the Black-Scholes Option Pricing Model.

A summary of stock option activity for the ~~six~~nine-month period ended ~~June~~September 30, 2011 and the ~~eight-month~~year ~~period~~ ended December 31, 2010 is presented below:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Stock		Exercise		Contract		Intrinsic
	Options		Price		Term		Value
Outstanding at April 30, 2010		-		-		-		-
Outstanding at December 31, 2009		-		-		-		-
Granted		2,141,842	$	0.60	5.0 years			-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Cancelled		-		-		-		-
Outstanding at December 31, 2010		2,141,842	$	0.60	5.0 years			-
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Cancelled		-		-		-		-
Outstanding and Exercisable at June 30, 2011		2,141,842	$	0.60	4.5 years		$
Outstanding and Exercisable at September 30, 2011		2,141,842	$	0.60	4.2 years		$

~~F-26~~The options outstanding as of September 30, 2011 and December 31, 2010 have an intrinsic value of $0.30 and $0.12 per share and an aggregate intrinsic value of $642,553 and $257,021, respectively.

The assumptions used in the Black-Scholes Option Pricing Model for the options granted during the year ended December 31, 2010 were as follows:

F-25

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

The options outstanding as of June 30, 2011 and December 31, 2010 have an intrinsic value of $0.75 and $0.12 per share and an aggregate intrinsic value of $1,606,382 and $257,021, respectively.

The assumptions used in the Black-Scholes Option Pricing Model for the options granted during the eight-month period ended December 31, 2010 were as follows:

Market value of the Company's Common Stock	$	0.60
Risk free interest rate		2.06	%
Expected volatility of common stock		193	%
Dividend yield	$	0.00
Expected life of warrants	5 years

Shares Reserved for Future Issuance

As of ~~June~~September 30, 2011 and December 31, 2010, the Company has reserved 3,808,509 shares of its common stock in the event that the Debenture is converted prior to maturity and the outstanding options are exercised prior to their expiration.

10.	Related Party Transactions

In January 2010, the Company engaged Synergy Resources LLC (“Synergy”) to provide geological and engineering consulting services. The Company’s President and sole Director is also a member of Synergy’s management team. Geological and engineering consulting service fees provided by Synergy for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2011 and 2010 totaled $3828,000, $6896,000, $~~30,000~~0 and $75,000, respectively.

As discussed in Note 9, in January 2010, the Company issued an aggregate of 6,666,667 restricted shares of its common stock at a price of $0.0015 to four individuals in a private transaction. Of the 6,666,667 shares issued, 4,222,222 shares were purchased by two of the individuals who are our sole officers at ~~June~~September 30, 2011. The proceeds received from the sale of the stock totaled $10,000. Proceeds from the two related parties totaled $6,333.

As discussed in Note 3, at Passport's December 2010 Annual General Meeting, Passport increased their number of directors to eight, one of whom is the Company's Vice President of Operations. As a result, the Company’s investment in Passport’s common stock is classified as a related party asset. As of ~~June~~September 30, 2011 and December 31, 2010, the fair market value of the Company’s investment in Passport was $~~127~~78,~~426~~095 and $197,453, respectively.

F-2726

American Eagle Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

As of ~~June~~September 30, 2011 and December 31, 2010 and

For the Three-Month and ~~Six~~Nine-Month Periods Ended ~~June~~September 30, 2011 and 2010

11.	Proposed Merger

On April 8, 2011, the Company entered into a definitive agreement (the “Merger Agreement”) with Eternal Energy to merge the two companies. Pursuant to the terms of the Merger Agreement, Eternal Energy formed a wholly owned subsidiary which will be merged into the Company, with the Company being the survivor as a wholly-owned subsidiary of Eternal Energy. The ratio of stockholdings between the two companies at the time of closing is expected to be 80% for American Eagle’s legacy stockholders and 20% for Eternal Energy’s stockholders (exclusive of outstanding options to purchase shares of the Company’s common stock and shares of the Eternal Energy’s common stock). Despite the fact the Company’s ~~shareholders~~stockholders will hold shares of the combined company’s common stock that will represent approximately 80% of the then-outstanding shares and the stockholders of Eternal Energy will hold shares of the combined company’s common stock that will represent approximately 20% of the then-outstanding shares (in each case without taking into account any outstanding options to purchase shares of either company’s common stock), other factors present in the structure of the proposed business combination result in Eternal Energy being considered the accounting acquirer in the transaction.

The corresponding purchase price allocation and pro forma financial statements that reflect the proposed merger can be found in the footnotes to the condensed consolidated financial statements of Eternal Energy, as presented in Eternal Energy’s Quarterly Report on Form 10-Q, ~~filed~~for ~~with~~ the ~~Securities~~period ~~Exchange~~ended ~~Commission~~September ~~on August 18~~30, 2011.

~~12. Subsequent Events~~F-27

In July 2011, the Company, along with its working interest partners, completed the fracture stimulation of the Hardy 4-16 well at an estimated aggregate cost of $725,000. The Company’s share of these costs is approximately $223,000. Management is currently evaluating the results of the fracture stimulation project.

F-28

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

A Note About Forward-Looking Statements

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

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

Industry Overview

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

Worldwide oil prices reached historical highs during the last half of 2008, before tumbling amid worldwide economic crisis. Oil prices stabilized during 2009 and remained stable throughout 2010. Since December 31, 2010, oil prices have increased rapidly, topping $100 per barrel in mid-March 2011 and then retreating to the mid-$80’s per barrel in mid-August 2011.

Oil prices cannot be predicted with any certainty and have significantly affected profitability and returns for upstream producers. Historically, crude oil prices have averaged approximately $7780 per barrel over the past five years, per the New York Mercantile Exchange (“NYMEX”). However, during that time, oil prices have experienced wide fluctuations in prices, ranging from $37 per barrel to $145 per barrel, with the median price of $7880 per barrel. Oil prices averaged approximately $9995 during the ~~six~~nine-month period ended ~~June~~September 30, 2011.

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

Company Overview

The address of our principal executive office is 27 North 27th Street, Suite 21G, Billings, Montana 59101. Our telephone number is 406-294-9765.

Our common stock is quoted on the OTC Bulletin Board under the symbol “AMZG.”

Our Company was incorporated in the State of Nevada under the name “Yellow Hill Energy Inc.” on March 14, 2007 and is engaged in the acquisition, exploration and development of natural resource properties of merit. On October 5, 2009, we filed documents with the Nevada Secretary of State to affect a change of our name from “Yellow Hill Energy Inc.” to “American Eagle Energy Inc.” by way of a merger with our wholly-owned subsidiary, American Eagle Energy Inc., which was formed solely to facilitate the name change.

On June 18, 2010, we formed a wholly-owned subsidiary named “AEE Canada Inc.” for the purpose of conducting operations and holding title to certain assets located within Canada.

We have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassifications, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.

On October 9, 2008, Scott Lindsay resigned as our President, Chief Financial Officer and Director and Sean Mitchell resigned as our Secretary, Treasurer and Director. As a result, on October 9, 2008, Jay Jhaveri was appointed to serve in these roles. On December 14, 2009, Mr. Jhaveri resigned and was replaced by Richard Findley. Mr. Findley currently serves as our President, Chief Financial Officer, Secretary, Treasurer and Director. In performing his duties, Mr. Findley currently devotes approximately 10 hours per week, for which he receives no direct monetary or stock-based compensation.

On June 7, 2010, we hired Thomas Lantz to serve as our Vice President of Operations. On June 1, 2011, we hired Richard Pershall to serve as our Operations Manager. Currently, Mr. Lantz and Mr. Pershall are our only paid employees.

Current Business

We are engaged in the exploration and production of oil and gas properties in the northern United States and south central Canada.

On October 14, 2009, our board of directors approved a forward split of our common stock on a one old for two new basis and, in connection with that forward split, our authorized capital increased from 75,000,000 shares with a par value of $0.001 to 150,000,000 shares with the same par value. As a result, the number of our issued and outstanding shares of common stock increased from 30,000,000 shares to 60,000,000 shares. The effective date of the forward split was October 26, 2009.

On January 13, 2010, we issued 10,000,000 shares of our common stock at par value to a group of four individuals in connection with a change in our business operations following Mr. Findley’s joining us. Gross proceeds received from the issuance totaled $10,000. The shares were contractually restricted from trading for periods ranging from six-months to one year from the date of issuance and were subject to certain performance standards that have now been met.

On January 14, 2010, we issued 1,060,000 shares of our common stock at a price of $0.75 per share in a private transaction. Gross proceeds from the issuance totaled $795,000. The shares were contractually restricted from trading for one year from the date of issuance.

On January 15, 2010, we entered into an assignment agreement with Murrayfield Limited (“Murrayfield”), a United Kingdom company, pursuant to which we acquired a 15% working interest in an anticipated oil and gas well in Wilkinson County, Mississippi for $150,000 in cash.

On January 21, 2010, we entered into a second assignment agreement with Murrayfield, pursuant to which we acquired a 12.5% working interest in an oil and gas lease covering 908 net acres located in Willacy County, Texas for $137,500 in cash.

In February 2010, we began to acquire oil and gas leases in Divide County, North Dakota (the “Spyglass ~~Prospect~~Property”), a region known for its Bakken and Three Forks zone oil production. On June 18, 2010, we sold a 50% working interest in the Spyglass ~~Prospect~~Property to Eternal Energy Corp. (“Eternal Energy”) and acquired a 50% working interest in approximately 4,~~480~~680 acres located in the Hardy Property. As of June 30, 2011, we owned working interests in oil and gas leases covering approximately 8,948 net acres within the Spyglass ~~Prospect~~Property.

On April 15, 2010, we entered into a Securities Purchase Agreement, whereby we sold a one-year 8% Convertible Debenture with an initial principal amount of $1,000,000, convertible at $1.125 per share, and a two-year warrant for the purchase of 416,667 shares of our common stock, exercisable at $1.20 per share, to an otherwise unaffiliated third-party investor.

During 2010, we began recognizing regular, recurring revenue from oil sales from properties in which we own working interests. Accordingly, we are no longer considered a development stage company.

On December 1, 2010, we received an irrevocable commitment for the purchase of $3.5 million of our common stock at a per-share price of $.60, or 5,833,333 shares. In December 2010, pursuant to the terms of the Convertible Debenture and the warrant, the conversion price and the exercise price of those instruments were reduced to $.60 per share, which resulted in our recording of an additional debt discount of $875,000.

On January 12, 2011, our board of directors approved a reverse split of our Company’s common stock on a one new for one and one-half old basis and, in connection with that reverse split, our authorized capital decreased from 150,000,000 shares with a par value of $0.001 to 100,000,000 shares with the same par value. As a result, the number of our issued and outstanding shares of common stock decreased from 56,310,000 shares to 37,540,000 shares. The effective date of the reverse split was January 24, 2011.

On December 3, 2010, the warrant was exercised in full and we issued 833,333 (post-split) shares of our common stock. On February 2, 2011, we received $666,666 of such committed funding and issued 1,111,111 shares of our common stock. On March 2, 2011, we received an additional $2 million of such committed funding and issued 3,333,333 shares of our common stock. On March 31, 2011, we collected an additional $500,000 of the committed funding and issued 833,333 shares of our common stock. The remaining $333,333 of the committed funding was collected in April 2011.

In December 2010, we changed our fiscal year end from April 30 to December 31. Accordingly, the financial statements accompanying this narrative are for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2011 and 2010.

In January 2011, we acquired an undivided 66.67% working interest in approximately 47,392 net acres located in Toole Country, Montana (the “Glacier Prospect”) for cash consideration of $1,195,624. Subsequently, we sold one half of our working interest to FX Energy, Inc. (“FX Energy”) for $597,812, which represents 50% of the original purchase price.

On February 24, 2011, the term of the Debenture was extended through April 15, 2012.

On April 8, 2011, we entered into a definitive agreement (the “Merger Agreement”) with Eternal Energy to merge the two companies. Pursuant to the terms of the Merger Agreement, Eternal Energy formed a wholly owned subsidiary into which our company will be merged, with our company being the survivor as a wholly-owned subsidiary of Eternal Energy.

On May 9, 2011, we entered into a Participation Agreement with Big Sky Operating LLC (“Big Sky”) and FX Energy, Inc. (“FX Energy”) whereby the three companies created an area of mutual interest (“AMI”) located in the Southern Alberta Basin. Pursuant to the agreement, we agreed to pool our leasehold positions within the AMI with the other two companies and to equalize our respective working interests in the play.

~~Results~~On May 27, 2011, we sold half of ~~Operations~~our ~~for~~50% working interest in the ~~Three-Month~~Spyglass ~~Period~~Prospect ~~Ended~~to ~~June~~NextEra 30Resources. The transaction was completed via three, ~~2011~~separate vsclosings, during which we received cash proceeds totaling $3,823,963, net of finder’s fees. ~~2010~~

We recognized net income of $1,438,073 for the three-month period ended June 30, 2011 versus a net loss of $134,888 for the three-month period ended June 30, 2010. A discussion of the key components of the results of our operations is provided below.

In June 2010, we acquired a 50% working interest in approximately 4,480 net acres located in southeastern Saskatchewan, Canada (the “Hardy Property”). The acquired acreage contained one existing oil well (the “Hardy 7-9 well”) that was shut in due to mechanical issues. During August 2010, we, along with our working interest partner, Eternal Energy, completed a workover and recompletion of the Hardy 7-9 well. The well was returned to production in September 2010. The well produced oil during the early part of April, before incurring further mechanical issues. The Hardy 7-9 well was repaired in May 2011 but remained shut-in through June 30, 2010, primarily due to weather conditions. Our portion of revenues from the sale of oil produced by the Hardy 7-9 well totaled $10,437 for the three-month period ended June 30, 2011. We did not own any working interests in any producing wells prior to June 2010. Accordingly, we recognized no revenue from oil and gas sales for the three-month period ended June 30, 2010.

In May 2011, we sold half of our working interest in our Spyglass Prospect to a third party. Net proceeds from the sale totaled $3,777,793, of which $320,833 was receivable as of June 30, 2011. The receivable was collected in August 2011. Because our working interest in the Spyglass Prospect represented a significant portion of our full cost pool that is not subject to amortization, we reallocated the aggregate cost of the full cost pool, not subject to amortization, among the various properties included within the pool, based on their estimated relative fair market values at the time the sale occurred, and recognized a gain in the amount of $2,085,627.

We began incurring lease operating expenses in September 2010, concurrent with the return of the Hardy 7-9 well to production. Oil and gas operating expenses totaled $71,042 for the three-month period ended June 30, 2011, which included trucking costs of $26,391, repairs and maintenance costs of $19,961 and well operator costs of $7,394, in addition to equipment rental, fuel, water disposal and miscellaneous other production costs. Because we did not own any working interests in any producing wells prior to June 2010, we did not recognize any oil and gas operating expense for the three-month period ended June 30, 2010.

General and administrative expenses totaled $167,722 for the three-month period ended June 30, 2011, compared to $34,708 for the three-month period ended June 30, 2010. The increase is primarily due to the following:

· In June 2010, we hired Tom Lantz to serve as our Vice President of Operations. We hired Richard Pershall to serve as our Operations Manager in June 2011. Payroll related expenses for the three-month period ended June 30, 2011 totaled $67,281, compared to $10,385 for the three-month period ended June 30, 2010. We currently offer no company-paid employee benefits to our employees.

· In June 2010, we began utilizing a third-party landman to provide land management services related to the administration and filing of oil and gas leases located within the Hardy Property, as well as within other geographic areas that we have targeted for acquisition. Land management expenses for the three-month period ended June 30, 2011 totaled $43,453. We incurred no land management expenses for the three-month period ended June 30, 2010, as we were just beginning to acquire significant interests in oil and gas leases at that time.

·Results Weof ~~subscribe~~Operations ~~to various well data services,~~ for ~~which we incurred fees totaling $24,492 for~~ the ~~three~~Three-~~month~~Month ~~period~~Period ~~ended~~Ended ~~June~~September 30, 2011. ~~We incurred no such fees in the comparable period in 2010~~vs. 2010

·We ~~Other~~recognized ~~general~~a ~~and~~net ~~administrative~~loss ~~costs~~of ~~incurred~~$329,574 ~~during~~for the three-month period ended ~~June~~September 30, 2011 ~~included~~versus ~~travel~~a ~~costs~~net ~~totaling~~loss ~~$15,599, investor relations costs~~ of $8278,~~170~~122 ~~related~~for tothe ~~press~~three-month ~~releases~~period ~~and~~ended ~~other~~September ~~investor communications~~30, ~~and~~2010. A ~~office~~discussion ~~rent expense~~ of ~~$3,551.~~the Wekey ~~currently~~components ~~utilize~~of ~~office space located within~~ the ~~corporate~~results ~~offices~~ of ~~Eternal~~our ~~Energy~~operations ~~Corp~~is provided below.

~~Professional~~We ~~fees,~~recognized ~~including~~oil ~~those~~sales ~~paid~~totaling ~~to related parties, totaled~~ $~~186~~123,~~360~~603 for the three-month period ended ~~June~~September 30, 2011 compared to $656,~~888~~398 for the same period in 2010. In June 2010, we acquired a 50% working interest in approximately 4,680 net acres located in southeastern Saskatchewan, Canada (the “Hardy Property”). The acquired acreage contained one existing oil well (the “Hardy 7-9 well”) that was shut in due to mechanical issues. During July 2010, we, along with our working interest partner, Eternal Energy, completed a workover and recompletion of the Hardy 7-9 well. The well was returned to production in September 2010. The Hardy 7-9 well produced oil during each of the three months ended September 30, 2011, versus only one month during the three-month period ended ~~June~~September 30, 2010. ~~The~~Oil ~~increase~~sales isfrom ~~primarily~~the ~~due~~Hardy to7-9 well totaled $77,035 for the ~~following:~~three-month period ended September 30, 2011 versus $6,398 for the comparable period in 2010.

·In WeJuly ~~incurred legal fees totaling $130,280 during the three-month period ended June 30,~~ 2011, ~~primarily~~we ~~related~~drilled toand ~~our~~completed ~~proposed~~the ~~merger~~Hardy ~~with~~4-16 ~~Eternal~~well. The ~~Energy as~~ well aswas ~~with~~subsequently ~~certain~~fracture ~~oil~~stimulated and ~~gas~~put ~~lease~~onto ~~acquisitions~~production ~~and~~in ~~our~~mid-September, ~~participation~~generating ~~agreement~~$59,575 ~~with~~of FXoil ~~Energy~~sales ~~and~~during ~~Big~~the ~~Sky~~final ~~Operating.~~two ~~Legal~~weeks ~~fees~~of ~~for~~September ~~the~~2011. No ~~three-month~~such ~~period~~revenue ~~ended~~was ~~June~~recognized ~~30,~~from ~~2010~~the ~~totaled~~Hardy ~~$28,205~~4-16 ~~and~~well ~~related~~prior ~~primarily~~ to ~~general~~September ~~corporate affairs~~2011.

· In ~~January~~May 2011, we ~~engaged~~sold half of our working interest in our Spyglass Property to a third- party. The ~~individual~~sale towas ~~perform~~completed ~~all~~via a series of ~~our~~three ~~accounting~~scheduled ~~and~~closings. Net ~~financial~~proceeds ~~reporting~~from ~~activities~~the sale totaled $3,823,963. Because Asour working interest in the Spyglass Property represented a ~~result,~~significant weportion ~~incurred~~of ~~accounting~~our ~~totaling~~full ~~$19~~cost pool that was not subject to amortization,~~099~~ ~~during~~we reallocated the ~~three~~aggregate, non-~~month~~amortizable ~~period~~cost ~~ended~~of ~~June~~the 30pool among the various properties included within the pool, ~~2011~~based on their estimated relative fair market values at the time the sale occurred, ~~compared~~and torecognized a gain in the amount of $2,~~405~~131,704, ~~for~~of which $46,077 was recognized as a gain during the three-month period ended ~~June~~September 30, ~~2010~~2011.

·We Inbegan ~~January~~incurring lease operating expenses in September 2010, weconcurrent ~~engaged~~with ~~Synergy~~the ~~Resources~~return ~~LLC~~of ~~(“Synergy”)~~the toHardy ~~provide~~7-9 uswell ~~with~~to ~~geological~~production. Oil and ~~engineering~~gas ~~consulting~~operating ~~services~~expenses ~~related~~totaled to$66,961 for the ~~research~~three-month ~~and~~period ~~pursuit~~ended ofSeptember ~~potential~~30, ~~prospective~~2011 ~~oil~~compared ~~and~~to ~~gas~~$41,110 ~~properties.~~for ~~Our~~the ~~President,~~three-month ~~Richard~~period ~~Findley~~ended September 30, ~~and~~2010. The ~~our~~increase ~~Vice~~is ~~President~~primarily ofdue ~~Operations,~~to ~~Tom~~the ~~Lantz,~~fact ~~currently~~that ~~serve~~the asHardy ~~members~~7-9 ofwell ~~Synergy’s~~operated ~~senior~~during ~~management~~each ~~team.~~month ~~Accordingly,~~of wethe ~~have~~three-month ~~presented~~period ~~the~~ended ~~fees~~September ~~billed~~2011 toversus usonly byone ~~Synergy~~month asin ~~professional~~the ~~fees~~three-month ~~from~~period aended ~~related~~September ~~party~~30, 2010. In ~~Professional~~addition, ~~fees~~the ~~from~~Hardy ~~related~~4-16 ~~parties~~well ~~totaled~~was ~~$38,000~~placed ~~and~~on ~~$30,000~~production in mid-September 2011. Lease operating expenses for the three-month periods ended ~~June~~September 30, 2011 and 2010, respectively, consist primarily of operator costs, trucking, equipment rental, fuel and routine repair and maintenance expenses.

WeGeneral ~~began~~and ~~amortizing~~administrative ~~our~~expenses ~~investment~~totaled in$164,170 for the ~~Hardy~~three-month ~~Property~~period inended September 30, ~~2010~~2011, ~~concurrent~~compared ~~with the return of the Hardy 7-9 well~~ to ~~production. Depletion expense totaled~~ $1470,~~278~~173 for the three-month period ended June 30, ~~2011~~2010. ~~Because~~The weincrease ~~did~~is ~~not~~primarily ~~own~~due ~~any working interests in any producing properties prior~~ to ~~June 2010, we did not record any depletion expense for~~ the ~~three-month period ended June 30, 2010.~~following:

In January 2010, we purchased an interest in a contemplated well located in Wilkinson County, Mississippi (the “Mississippi Prospect”) for $150,000 in cash. In June 2010, we resold our interest in the Mississippi Prospect to the original seller. Net proceeds from the sale totaled $144,063, which represent the original purchase price of $150,000, less preliminary drilling costs incurred to date of $5,937. We recognized impairment expense related to the Mississippi Prospect of $5,937 in the results of our operations for the three-month period ended June 30, 2010.

On· ~~April~~Payroll ~~15,~~related ~~2010,~~expenses weincreased ~~borrowed~~from $138,~~000,000~~987 through the sale of a one year, 8% Secured, Convertible Debenture (the “Debenture”). On February 24, 2011, the term of the Debenture was extended through April 15, 2012. Interest expense related to ~~the Debenture totaled~~ $2088,~~000~~778 for the three-month ~~period~~periods ended ~~June~~September 30, 2010 and 2011 respectively, ~~versus~~primarily ~~$16,667~~as ~~for~~a ~~the~~result ~~comparable~~of ~~period~~hiring inRichard ~~2010~~Pershall to serve as our Operations Manager.

~~Attached~~· toIn ~~the~~July ~~Debenture~~2011, ~~were~~we ~~warrants~~purchased ~~to purchase additional shares of the Company~~directors’s ~~stock. A portion of the net proceeds from the issuance of the Debenture was allocated to the warrants~~ and ~~recorded~~officers’ ~~as an increase to additional paid-in capital~~insurance, ~~resulting~~at in a ~~“debt~~cost ~~discount”~~ of $~~280~~30,~~511 at the time that the Debentures were sold~~000. We ~~are~~No ~~amortizing~~such ~~the~~insurance ~~debt~~coverage ~~discount~~was ~~over~~purchased ~~the~~prior ~~original~~to ~~life~~that ~~of the Debenture~~time.

In· ~~December~~We ~~2010,~~subscribe ~~the conversion price of the Debenture was reduced from $1.125~~ to ~~$0.60~~various aswell adata ~~result of receiving an irrevocable commitment to purchase 5~~services,~~833,333shares~~ offor ~~our~~which ~~common stock. Accordingly,~~ we ~~recorded~~incurred anfees ~~additional~~totaling ~~debt discount in the amount of~~ $~~875~~13,~~000. We~~013 ~~recognized aggregate accretion expense related to the debt discounts of $198,231~~ for the three-month period ended ~~June~~September 30, 2011,. ~~compared~~We toincurred ~~$11,688~~no ~~for~~such fees in the ~~three-month~~comparable period ~~ended~~in ~~June 30,~~ 2010.

~~Results~~Professional offees ~~Operations~~decreased from $56,170 for the ~~Six~~three-~~Month~~month ~~Period~~period ~~Ended~~ended ~~June~~September 30, ~~2011~~2010 vsto $49,990 for the same period in 2011. The ~~2010~~decrease is primarily due to lower accounting fees incurred during the period.

WeIn ~~recognized~~January ~~net~~2010, ~~income~~we engaged Synergy Resources LLC (“Synergy”) to provide us with geological and engineering consulting services related to the research and pursuit of ~~$790~~potential,~~058~~ ~~for~~prospective ~~the~~oil ~~six-month~~and ~~period~~gas ~~ended~~properties. Our ~~June~~President, 30Richard Findley, ~~2011~~and ~~versus~~our aVice ~~net~~President ~~loss~~of Operations, Tom Lantz, currently serve as members of ~~$208~~Synergy’s senior management team. Accordingly,~~742~~ ~~for~~we have presented the ~~six-month~~fees ~~period~~billed ~~ended~~to ~~June~~us ~~30,~~by ~~2010~~Synergy as professional fees from a related party. AProfessional ~~discussion~~fees offrom ~~the~~related ~~key~~parties ~~components~~totaled of$28,000 and $40,000 for the ~~results~~three-month ofperiods ~~our~~ended ~~operations~~September is30, ~~provided~~2011 ~~below~~and 2010, respectively.

InWe ~~June~~began ~~2010,~~amortizing weour ~~acquired~~investment ~~a 50% working interest~~ in ~~approximately 4,480 net acres located in southeastern Saskatchewan, Canada (~~the “Hardy Property~~”). The~~ ~~acquired acreage contained one existing oil well (the “Hardy 7-9 well”) that was shut~~ in ~~due~~October to30, ~~mechanical issues. During August~~ 2010, ~~we,~~concurrent ~~along~~ with ~~our~~the ~~working~~return ~~interest partner, Eternal Energy, completed a workover and recompletion~~ of the Hardy 7-9 well~~. The~~ ~~well was returned~~ to ~~production~~regular ~~in September 2010. From September 1, 2010 through December 31, 2010, the Hardy 7-9 well produced oil volumes ranging from 40 to 58 barrels per day. In January 2011, the well was taken off of~~ production ~~due to a parted rod string~~. ~~Repairs~~Depletion ~~were~~expense made to the well during January and February 2011, and the well was returned to production in March 2011. In mid-April, 2011, the well was again taken off of production to perform repairs. Once repaired, the well remained shut-in through June 30, 2011 due to inclement weather. Our portion of revenues from the sale of oil produced by the Hardy 7-9 well totaled $4626,~~477~~908 for the ~~six~~three-month period ended ~~June~~September 30, 2011~~. We~~ ~~did~~compared ~~not own any working interests in any producing wells prior~~ to ~~June~~$0 ~~2010. Accordingly, we recognized no revenue from oil and gas sales~~ for the ~~three-month~~same period ~~ended~~in ~~June 30,~~ 2010.

InOn ~~May~~April ~~2011~~15, 2010, we ~~sold~~borrowed ~~half~~$1,000,000 ofthrough ~~our~~the ~~working~~sale ~~interest~~of ina ~~our~~one ~~Spyglass~~year, ~~Prospect~~8% toSecured, aConvertible ~~third~~Debenture ~~party~~(the “Debenture”). ~~Net~~On ~~proceeds~~February ~~from~~24, 2011, the ~~sale~~term ~~totaled $3,777,793,~~ of ~~which~~the ~~$320,833~~Debenture was ~~receivable~~extended asthrough ofApril ~~June 30~~15, ~~2011~~2012. ~~The~~Interest ~~receivable~~expense ~~was~~related ~~collected~~to inthe ~~August~~Debenture ~~2011. Because~~totaled ~~our~~$21,230 ~~working~~for ~~interest in~~ the ~~Spyglass~~three-month ~~Prospect~~period ~~represented~~ended aSeptember ~~significant~~30, ~~portion~~2011, ofversus ~~our full cost pool that is not subject to amortization~~$6,939 wefor ~~reallocated~~ the ~~aggregate~~comparable ~~cost~~period ofin ~~the~~2010. The ~~full~~increase ~~cost~~is ~~pool,~~primarily ~~not~~due ~~subject~~ to ~~amortization, among~~ the ~~various~~timing ~~properties~~of ~~included within~~ the ~~pool,~~recording ~~based~~of oninterest ~~their~~payable ~~estimated~~and ~~relative fair market values at~~ the ~~time~~change ~~the~~in ~~sale~~our ~~occurred,~~fiscal ~~and~~year ~~recognized~~reporting aperiod ~~gain~~from inApril ~~the~~30 ~~amount~~to ofDecember ~~$2,085,627~~31.

Attached to the Debenture are warrants to purchase additional shares of our stock. Accordingly, we allocated a portion of the net proceeds from the issuance of the Debenture to the warrants and recorded amount as an increase to additional paid-in capital, resulting in a “debt discount” of $280,511 at the time that the Debentures were sold. We are amortizing the debt discount over the original life of the Debenture.

WeIn ~~began~~December ~~incurring lease operating expenses in September~~ 2010, ~~concurrent with~~ the ~~return~~conversion price of the ~~Hardy~~Debenture ~~7-9~~was ~~well~~reduced tofrom ~~production~~$1. ~~Oil~~125 ~~and~~to ~~gas~~$0.60 ~~operating~~as ~~expenses~~a ~~totaled~~result ~~$117,676~~of ~~for~~receiving ~~the~~an ~~six-month~~irrevocable ~~period~~commitment ~~ended~~to ~~June~~purchase 305, ~~2011~~833,333shares ~~which~~of ~~included~~our ~~trucking~~common ~~costs of $36~~stock. Accordingly,~~738,~~ ~~repairs~~we ~~and~~recorded ~~maintenance~~an ~~costs~~additional ofdebt ~~$30,083~~discount ~~and~~in ~~well~~the ~~operator~~amount ~~costs~~ of $17875,~~438, in addition to equipment rental, fuel, water disposal and miscellaneous other production costs~~000. ~~Because~~We werecognized ~~did~~aggregate ~~not~~accretion ~~own~~expense ~~any~~related ~~working~~to ~~interests~~the indebt ~~any~~discounts ~~producing~~of ~~wells prior to June 2010~~$141,580 wefor ~~did~~the ~~not~~three-month ~~recognize~~period ~~any~~ended ~~oil~~September ~~and~~30, ~~gas~~2011, ~~operating~~compared ~~expense~~to $70,128 for the ~~six~~three-month period ended ~~June~~September 30, 2010.

~~General~~In ~~and~~December ~~administrative~~2010, ~~expenses~~we ~~totaled~~recorded ~~$275~~a long-term,~~072~~ ~~for~~asset retirement obligation associated with the ~~six~~eventual future abandonment of our Hardy 7-~~month~~9 ~~period~~well ~~ended~~and ~~June~~the ~~30,~~related estimated plugging and environmental reclamation costs. A similar liability was recorded in June 2011, ~~compared~~related to the future abandonment of our Hardy 4-16 well. The liabilities were recorded using their net present values. The discounts associated with these liabilities are being amortized over the period of time from the present to the estimated plugging and abandonment dates. We recognized $~~40,048~~415 of accretion expense for the ~~six~~three-month period ended ~~June~~September ~~30,~~2011 ~~2010. The~~compared ~~increase~~to is$0 ~~primarily~~for ~~due~~the tocomparable ~~the~~period ~~following:~~in 2010.

·Results ~~In June 2010, we hired Tom Lantz to serve as our Vice President~~ of Operations. ~~We hired Richard Pershall to serve as our Operations Manager in June 2011. Payroll related expenses~~ for the ~~six~~Nine-~~month~~Month ~~period~~Period ~~ended~~Ended ~~June~~September 30, 2011 ~~totaled~~vs. ~~$108,350, compared to $10,385 for the six-month period ended June 30,~~ 2010.

·We Inrecognized ~~June~~net ~~2010,~~income ~~we began utilizing a third-party landman to provide land management services related to the administration and filing~~ of ~~oil and gas leases located within the Hardy Property~~$460,484 ~~as well as within other geographic areas that we have targeted~~ for ~~acquisition. Land management expenses for~~ the ~~six~~nine-month period ended ~~June~~September 30, 2011 ~~totaled~~versus ~~$80,860.~~a Wenet ~~incurred~~loss noof ~~land~~$486,864 ~~management expenses~~ for the ~~six~~nine-month period ended ~~June~~September 30, 2010,. A asdiscussion weof ~~were~~the ~~just~~key ~~beginning~~components toof ~~acquire~~the ~~significant~~results ~~interests~~of inour ~~oil~~operations ~~and~~is ~~gas~~provided ~~leases at that time~~below.

·As Wediscussed ~~subscribe~~above, toin ~~various~~June ~~well~~2010, ~~data~~we ~~services~~acquired a 50% working interest in approximately 4,680 ~~for~~net acres located in southeastern Saskatchewan, Canada (the “Hardy Property”). The acquired acreage contained the Hardy 7-9 well, which was shut-in due to mechanical issues. During August 2010, we, ~~incurred~~along ~~fees~~with ~~totaling~~our ~~$28~~working interest partner,~~849~~ ~~for~~Eternal Energy, completed a workover and recompletion of the ~~six~~Hardy 7-~~month~~9 ~~period~~well. The ~~ended~~well was returned to production in September 2010. From September 1, 2010 through December 31, 2010, the Hardy 7-9 well produced oil volumes ranging from 40 to 58 barrels per day. In January 2011, the well was taken off of production due to a parted rod string. Repairs were made to the well during January and February 2011, and the well was returned to production in March 2011. In mid-April, 2011, the well was again taken off of production to perform repairs. Once repaired, the well remained shut-in through June 30, 2011 due to inclement weather. The Wewell ~~incurred~~was noonce ~~such~~again ~~fees~~returned to production in July 2011 and continued to produce oil through the ~~comparable~~remainder of the current period. Our portion of the net revenues from the sale of oil produced by the Hardy 7-9 well totaled $128,841 for the nine-month period ended September 30, 2011, compared to $6,398 for the same period in 2010.

·In ~~Other~~July ~~general~~2011, ~~and~~we ~~administrative~~drilled ~~costs~~and ~~incurred~~completed ~~during~~ the ~~six~~Hardy 4-~~month~~16 ~~period~~well. The ~~ended~~well ~~June~~was ~~30,~~subsequently ~~2011~~fracture ~~included~~stimulated ~~travel~~and ~~costs~~put ~~totaling~~onto production in mid-September, generating $2559,~~257,~~575 ~~investor~~of ~~relations~~net ~~costs~~oil ofsales ~~$11,615~~during ~~related~~the tofinal ~~press~~two ~~releases~~weeks ~~and~~of ~~other~~September ~~investor~~2011. No ~~communications,~~such ~~filing~~revenue ~~fees~~was ofrecognized ~~$6,672~~from ~~and~~the ~~office~~Hardy ~~rent~~4-16 ~~expense~~well ofprior ~~$6,215~~to September 2011.

Professional fees, including those paid to related parties, totaled $450,376 for the six-month period ended June 30, 2011 compared to $134,402 for the six-month period ended June 30, 2010. The increase is primarily due to the following:

· We incurred legal fees totaling $293,083 during the six-month period ended June 30, 2011, primarily related to our proposed merger with Eternal Energy as well as with certain oil and gas lease acquisitions and our participation agreement with FX Energy and Big Sky Operating. Legal fees for the six-month period ended June 30, 2010 totaled $49,470 and related primarily to general corporate affairs.

·In WeMay ~~incurred~~2011, ~~accounting~~we ~~fees~~sold ~~totaling~~half ~~$73,295~~of ~~during~~our ~~the~~working ~~six-month~~interest ~~period~~in ~~ended~~our ~~June~~Spyglass ~~30,~~Prospect ~~2011,~~to ~~primarily~~a asthird aparty. The ~~result~~sale ofwas ~~changing~~completed ~~our~~via ~~fiscal~~three ~~year~~separate ~~end~~closings. Net proceeds from ~~April~~the 30sale tototaled ~~December 31~~$3,823,964. Because ~~which~~our ~~necessitated~~working ~~the~~interest ~~filing~~in ofthe ~~audited~~Spyglass ~~financial~~Prospect ~~statements~~represented ~~during~~a ~~the~~significant ~~first~~portion ~~quarter~~ of ~~2011.~~our ~~Fees~~full ~~related~~cost topool ~~the~~that ~~audit~~is ofnot ~~our~~subject ~~December~~to 31amortization, ~~2010~~we ~~financial~~reallocated ~~statements~~the ~~totaled $28~~aggregate,~~250.~~ Innon-amortizable ~~addition,~~cost weof ~~engaged~~the afull ~~third-party~~cost ~~individual~~pool toamong ~~perform~~the ~~all~~various ofproperties ~~our~~included ~~accounting~~within ~~and~~the ~~financial~~pool, ~~reporting~~based ~~activities~~on ~~beginning~~their inestimated ~~January~~relative ~~2011.~~fair ~~Accounting~~market ~~fees~~values ~~for~~at the ~~six-month~~time ~~period~~the ~~ended~~sale ~~June 30~~occurred, ~~2010~~and ~~related~~recognized toa ~~reviews~~gain ofin ~~our~~the ~~quarterly~~amount ~~financial~~of ~~statements and totaled~~ $42,~~655~~131,704.

·We ~~During~~began incurring lease operating expenses in September 2010, concurrent with the ~~six~~return of the Hardy 7-9 well to production. Oil and gas operating expenses totaled $184,637 for the nine-month period ended ~~June~~September 30, 2011, wewhich ~~incurred~~included ~~engineering~~trucking ~~consulting~~costs of $72,529, repairs and ~~business~~maintenance ~~valuation~~costs ~~service~~of ~~fees~~$46,296 ~~related~~and towell ~~potential~~operator ~~acquisitions~~costs ~~totaling~~of $1521,~~998~~562, ~~compared~~in addition to $5equipment rental,~~278~~ fuel, water disposal and miscellaneous other production costs. Oil and gas operating expenses for the ~~comparable~~nine-month period ended September 30, 2010 totaled $41,110 and consisted primarily of trucking related costs $34,091. The increase in oil and gas operating expenses is simply due to emergence of the Hardy 4-16 well during the current period as well as the fact that the Hardy 7-9 well produced intermittently during 2011, versus only during the latter months of 2010.

·General ~~In January 2010, we engaged Synergy Resources LLC (“Synergy”) to provide us with geological~~ and ~~engineering~~administrative ~~consulting~~expenses ~~services~~totaled ~~related~~$439,242 tofor the ~~research~~nine-month ~~and~~period ~~pursuit~~ended ofSeptember ~~potential~~30, ~~prospective oil and gas properties. Our President~~2011, ~~Richard~~compared ~~Findley, and our Vice President of Operations, Tom Lantz, currently serve as members of Synergy’s senior management team. Accordingly, we have presented the fees billed~~ to ~~us by Synergy as professional fees from a related party. Professional fees from related parties totaled~~ $68110,~~000~~221 ~~and $75,000~~ for the ~~six~~nine-month ~~periods~~period ended ~~June~~September 30, ~~2011~~2010. The ~~and~~increase ~~2010,~~is ~~respectively.~~primarily due to the following:

We· ~~began~~In ~~amortizing~~June ~~our~~2010, ~~investment~~we inhired ~~the~~Tom ~~Hardy~~Lantz ~~Property~~to inserve ~~September~~as ~~30,~~our ~~2010,~~Vice ~~concurrent~~President ~~with~~of ~~the~~Operations. ~~return~~We ofhired ~~the~~Richard ~~Hardy~~Pershall ~~7-9~~to ~~well~~serve toas ~~production~~our Operations Manager in June 2011. ~~Depletion~~ ~~expense~~Payroll ~~totaled~~related ~~$28,482~~expenses for the ~~six~~nine-month period ended ~~June~~September 30, 2011~~. Because~~ wetotaled ~~did~~$197,128, ~~not~~compared ~~own any working interests in any producing properties prior~~ to ~~June 2010~~$49,371 ~~we did not record any depletion expense~~ for the ~~three~~nine-month period ended ~~June~~September 30, 2010.

In June 2010, we began utilizing a third-party landman to provide land management services related to the administration and filing of oil and gas leases located within the Hardy Property, as well as within other geographic areas that we have targeted for acquisition. Land management expenses for the nine-month period ended September 30, 2011 totaled $99,472, compared to $21,520 for the same period in 2010.

We subscribe to various well data services, for which we incurred fees totaling $41,862 for the nine-month period ended September 30, 2011. We incurred no such fees in the comparable period in 2010.

In July 2011, we purchased directors’ and officers’ insurance, at a cost of $30,000. No such insurance coverage was purchased prior to that time.

Travel related expenses increased from $14,860 for the nine-month period ended September 30, 2010 to $30,507 for the nine-month period ended September 30, 2011, primarily due to travel related to the proposed merger with Eternal Energy.

Year-to-date professional fees increased from $155,572 for the nine-month period ended September 2010 to $432,366 for the nine-month period ended September 30, 2011. The increase is primarily due to the following:

We incurred legal fees totaling $330,141 during the nine-month period ended September 30, 2011, primarily related to our proposed merger with Eternal Energy as well as with certain oil and gas lease acquisitions and our participation agreement with FX Energy and Big Sky Operating. Legal fees for the nine-month period ended September 30, 2010 totaled $86,217 and related primarily to general corporate affairs.

We incurred accounting fees totaling $86,226 during the nine-month period ended September 30, 2011, primarily as a result of changing our fiscal year end from April 30 to December 31, which necessitated the filing of audited financial statements during the first quarter of 2011. In addition, we engaged a third-party individual to perform all of our accounting and financial reporting activities beginning in January 2011. Accounting fees for the nine-month period ended September 30, 2010 related to reviews of our quarterly financial statements and totaled $20,030.

During the nine-month period ended September 30, 2011, we incurred engineering consulting and business valuation service fees related to potential acquisitions totaling $15,998, compared to $49,325 for the comparable period in 2010.

In January 2010, we engaged Synergy Resources LLC (“Synergy”) to provide us with geological and engineering consulting services related to the research and pursuit of potential, prospective oil and gas properties. Our President, Richard Findley, and our Vice President of Operations, Tom Lantz, currently serve as members of Synergy’s senior management team. Accordingly, we have presented the fees billed to us by Synergy as professional fees from a related party. Professional fees from related parties totaled $96,000 and $75,000 for the nine-month periods ended September 30, 2011 and 2010, respectively.

We began amortizing our investment in the Hardy Property in October 2010. Additional depletion expense was recognized beginning in September 2011 when our Hardy 4-16 well was put on production. Depletion expense totaled $55,390 for the nine-month period ended September 30, 2011. No such depletion expense was recorded for the nine-month period ended September 30, 2010 as the Hardy 7-9 well had not yet been restored to regular production.

On April 15, 2010, we borrowed $1,000,000 through the sale of a one year, 8% Secured, Convertible Debenture (the “Debenture”). In February 2011, our lender extended the maturity date of the Debenture to April 15, 2012. Interest expense related to the Debenture totaled $40,000 for the six-month period ended June 30, 2011, versus $16,667 for the comparable period in 2010.12

On April 15, 2010, we borrowed $1,000,000 through the sale of a one-year, 8% Secured, Convertible Debenture (the “Debenture”). In February 2011, our lender extended the maturity date of the Debenture to April 15, 2012. Interest expense related to the Debenture totaled $61,230 for the nine-month period ended September 30, 2011, versus $23,606 for the comparable period in 2010. The increase is primarily due to the timing of the recording of interest payable and the change in our fiscal year reporting period from April 30 to December 31.

Attached to the Debenture were warrants to purchase additional shares of the Company’s stock. A portion of the net proceeds from the issuance of the Debenture was allocated to the warrants and recorded as an increase to additional paid-in capital, resulting in a “debt discount” of $280,511 at the time that the Debentures were sold. We are amortizing the debt discount over the original life of the Debenture.

11In December 2010, the conversion price of the Debenture was reduced from $1.125 to $0.60 as a result of receiving an irrevocable commitment to purchase 5,833,333 shares of our common stock. Accordingly, we recorded an additional debt discount in the amount of $875,000. We recognized aggregate accretion expense related to the debt discounts of $571,313 for the nine-month period ended September 30, 2011, compared to $81,816 for the nine-month period ended September 30, 2010.

In December 2010, the conversion price of the Debenture was reduced from $1.125 to $0.60 as a result of receiving an irrevocable commitment to purchase 5,833,333shares of our common stock. Accordingly, we recorded an additional debt discount in the amount of $875,000. We recognized aggregate accretion expense related to the debt discounts of $429,733 for the six-month period ended June 30, 2011, compared to $11,688 for the six-month period ended June 30, 2010.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At ~~June~~September 30, 2011, our liquid assets consisted of cash totaling $31,~~157~~435,~~630~~941, receivables from working interest partners totaling $1205,~~127,387~~821 and marketable securities valued at $~~127~~78,~~426~~095. Our intention is to hold the marketable securities indefinitely and, accordingly, the marketable securities have been classified as noncurrent assets. Notwithstanding this classification, our working capital deficit as of ~~June~~September 30, 2011 was $1453,~~710~~324,~~910,~~ compared to a working capital surplus of $1,689,027 as of December 31, 2010. Working capital decreased from December 31, 2010 to September 30, 2011 primarily due to the drilling of the Hardy 4-16 well and the acquisition of significant acreage positions in the West Spyglass Prospect.

It may be necessary for the Company to seek additional funding, either through the capital markets, some form of debt financing or through the sale of certain assets to fund our future operations. The Company owns interests in oil and gas properties having an aggregate cost basis of $57,~~315~~149,~~698~~273 as of ~~June~~September 30, 2011, the partial or complete monetization of which could provide significant working capital for future operations. Our management team is currently evaluating the available funding options and developing an ongoing funding strategy for meeting our future working capital needs.

Proposed Merger

On February 22, 2011, we announced our intention to pursue a merger with Eternal Energy. On April 8, 2011, we entered into a definitive merger agreement (the “Merger Agreement”) pursuant to which we will merge into a subsidiary of Eternal Energy and will survive as a wholly-owned subsidiary of Eternal Energy. On September 28, 2011, the parties executed an amendment to the Merger Agreement to extend the termination date from September 30, 2011 to December 31, 2011.

The closing of the proposed merger is subject to, among other items, (i) the registration of the common stock currently contemplated to be issued by Eternal to our stockholders, and (ii) the approval of the transaction by the boards of directors of both companies and by our stockholders. The ratio of stockholdings between the companies at the closing of the possible merger, exclusive of any presently outstanding options, is currently anticipated to be 80% to our legacy stockholders and 20% to the legacy stockholders of Eternal Energy.13

The closing of the proposed merger is subject to, among other items, the approval of the transaction by the boards of directors of both companies and by our stockholders. The ratio of stockholdings between the companies at the closing of the possible merger, exclusive of any presently outstanding options, is currently anticipated to be 80% to our legacy stockholders and 20% to the legacy stockholders of Eternal Energy.

On November 11, 2011, Eternal Energy registered the shares of its common stock that would be issued in connection with the proposed merger with the U.S. Securities and Exchange Commission. If approved by our shareholders, the proposed merger with Eternal Energy is expected to close in early December 2011.

Litigation

As of ~~June~~September 30, 2011, we are not subject to any known or threatened litigation.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 4. CONTROLS AND PROCEDURES.

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~September 30, 2011. There has been no change in the Company’s internal control over financial reporting during the quarter ended ~~June~~September 30, 2011, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

1314

PART II - OTHER INFORMATION

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 14, 2010, we received an irrevocable commitment for the purchase of 5,833,333 shares of our common stock at a price of $0.60 per share, resulting in aggregate funds to be received of $3,500,000. We received $2,666,667 of such funds during February and March 2011 and issued an aggregate of 4,444,445 shares of our common stock. We received the remaining $833,333 of such funds during April 2011 and issued an additional 1,388,888 shares of our common stock.

We believe that, pursuant to Section 4(2) of the Securities Act of 1933, as amended, the issuance of these shares of common stock is exempt from the registration requirements of Section 5 the Act. We believe that such exemption was available because (i) no advertising or general solicitation was employed in the offering and granting of the options, (ii) the offers and sales were made to four persons, all of whom were accredited investors, and (iii) transfers of the shares are restricted in accordance with the requirements of the Act.

ITEM 6. EXHIBITS.

Exhibit		Description of Exhibit
2.1*		Agreement and Plan of Merger, dated April 8, 2011, by and among Eternal Energy Corp., Eternal Sub Corp., and the Company.
2.1		Agreement and Plan of Merger, dated April 8, 2011, by and among Eternal Energy Corp., Eternal Sub Corp., and the Company (incorporated by reference to Exhibit 2.1 of the Company’s Quarterly Report on Form 10-Q, filed May 17, 2011).
2.1a		First Amendment to Agreement and Plan of Merger, dated as of September 28, 2011, by and among the Company, Eternal Energy Corp., and Eternal Sub Corp. (incorporated by reference to Exhibit 2.1(a) of the Company’s Current Report on Form 8-K, filed September 28, 2011).
3.1		Articles of Incorporation, as filed with the Secretary of State of the State of Nevada, effective March 14, 2007 (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form SB-2, filed June 8, 2007).
3.2		Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form SB-2, filed June 8, 2007).
3.3		Articles of Merger, as filed with the Secretary of State of the State of Nevada, effective October 5, 2009 (incorporated by reference to Exhibit 3.01 of the Company’s Current Report on Form 8-K, filed October 5, 2009).
3.4		Certificate of Change, as filed with the Secretary of State of the State of Nevada, effective October 15, 2009 (incorporated by reference to Exhibit 3.01 of the Company’s Current Report on Form 8-K, filed October 14, 2009).
10.1		Form of Private Placement Subscription Agreement for an aggregate amount of 10,000,000 shares, dated December 21, 2009 (incorporated by reference to Exhibit 10.1 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.2		Escrow Agreement among American Eagle Energy Inc, Golden Vista Energy, LLC, Thomas G. Lantz, Steven Swanson and Baker & Hostetler, LLP, dated December 21, 2009 (incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.3		Assignment Agreement between the Company and Murrayfield Limited, effective January 15, 2010 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed January 20, 2010).
10.4		Assignment Agreement between the Company and Murrayfield Limited, effective January 21, 2010 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed January 22, 2010).
10.5		Termination Agreement (of the US Pebble Acquisition Agreement) among Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum Inc., and Rover Resources Inc., dated April 29, 2010 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed May 19, 2010).
10.6		Termination Agreement (of the Canadian Pebble Acquisition Agreement) among Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., and Pebble Petroleum Inc., dated April 29, 2010 (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K, filed May 19, 2010).
10.7		Termination Agreement (of the US Prospect Acquisition Agreement) among Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum Inc., Rover Resources Inc., Steven Swanson, Richard L. Findley, Thomas G. Lantz, and Ryland Oil Corporation, dated May 11, 2010 (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K, filed May 19, 2010).

10.8		Termination Agreement (of the Canadian Prospect Acquisition Agreement) among Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum Inc., Steven Swanson, Richard L. Findley, Thomas G. Lantz, and Ryland Oil Corporation, dated May 11, 2010 (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K, filed May 19, 2010).
10.9		Securities Purchase Agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.10		Debenture of American Eagle Energy Corp. in favor of Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.11		Security Agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.12		Common Stock Purchase Warrant agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.13		Registration Rights Agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.14		Assignment Settlement Agreement between the Company and Lexaria Corp., dated June 16, 2010 (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.15		Letter Agreement between the Company and Eternal Energy Corp., dated June 18, 2010 (incorporated by reference to Exhibit 10.15 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.16		Form of Private Placement Subscription Agreement between American Eagle Energy Inc. and Finter Bank Zurich, dated December 16, 2009 (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.17		Letter of Intent between American Eagle Energy Inc. and Eternal Energy Corp., dated February 22, 2011 (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.18		Contribution Agreement among American Eagle Energy Inc., Synergy Resources LLC, Bradley Colby, Thomas Lantz, Steve Swanson and Richard Findley, dated December 14, 2010 (incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.19		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Bradley Colby, dated December 30, 2010 (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.20		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Thomas Lantz, dated December 30, 2010 (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.21		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Steven Swanson, dated December 30, 2010 (incorporated by reference to Exhibit 10.21 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.22		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Dick Findley, dated December 30, 2010 (incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.23		Lease Acquisition Agreement among American Eagle Energy Inc., Americana Exploration LLC and Big Sky Operating LLC, dated January 31, 2011 (incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.24		Participation and Operating Agreement by and among Eternal Energy Corp., AEE Canada Inc., and Passport Energy Inc. dated April 15, 2011.
10.25		Participation Agreement among the Company, Big Sky Operating LLC, and FX Producing Company, Inc., dated effective February 1, 2011.

10.26*^		Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC, dated May 17, 2011.
10.8		Termination Agreement (of the Canadian Prospect Acquisition Agreement) among Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum Inc., Steven Swanson, Richard L. Findley, Thomas G. Lantz, and Ryland Oil Corporation, dated May 11, 2010 (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K, filed May 19, 2010).
10.27*^		Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC, dated May 17, 2011.
10.9		Securities Purchase Agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.27a*		First Amendment to the Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC, (dated May 17, 2011), dated June 14, 2011.
10.10		Debenture of American Eagle Energy Corp. in favor of Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.27b*		Second Amendment to the Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC (dated May 17, 2011), dated July 25, 2011.
10.11		Security Agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
31.1*		Certification of President and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.12		Common Stock Purchase Warrant agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
32.1*		Certification of President and Treasurer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.13		Registration Rights Agreement between the Company and Cat Brokerage AG, dated April 15, 2010 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.14		Assignment Settlement Agreement between the Company and Lexaria Corp., dated June 16, 2010 (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.15		Letter Agreement between the Company and Eternal Energy Corp., dated June 18, 2010 (incorporated by reference to Exhibit 10.15 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.16		Form of Private Placement Subscription Agreement between American Eagle Energy Inc. and Finter Bank Zurich, dated December 16, 2009 (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K, filed August 12, 2010).
10.17		Letter of Intent between American Eagle Energy Inc. and Eternal Energy Corp., dated February 22, 2011 (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.18		Contribution Agreement among American Eagle Energy Inc., Synergy Resources LLC, Bradley Colby, Thomas Lantz, Steve Swanson and Richard Findley, dated December 14, 2010 (incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.19		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Bradley Colby, dated December 30, 2010 (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.20		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Thomas Lantz, dated December 30, 2010 (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.21		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Steven Swanson, dated December 30, 2010 (incorporated by reference to Exhibit 10.21 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.22		Non-Qualified Stock Option Agreement between American Eagle Energy Inc. and Dick Findley, dated December 30, 2010 (incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.23		Lease Acquisition Agreement among American Eagle Energy Inc., Americana Exploration LLC and Big Sky Operating LLC, dated January 31, 2011 (incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K, filed March 23, 2011).
10.24		Participation and Operating Agreement by and among Eternal Energy Corp., AEE Canada Inc., and Passport Energy Inc. dated April 15, 2011 (incorporated by reference to Exhibit 10.24 of the Company’s Quarterly Report on Form 10-Q, filed May 17, 2011).
10.25		Participation Agreement among the Company, Big Sky Operating LLC, and FX Producing Company, Inc., dated effective February 1, 2011 (incorporated by reference to Exhibit 10.25 of the Company’s Quarterly Report on Form 10-Q, filed May 17, 2011).

* Filed herewith.

^ Portions omitted pursuant to a request for confidential treatment.

10.26^		Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC, dated May 17, 2011 (incorporated by reference to Exhibit 10.26 of the Company’s Quarterly Report on Form 10-Q, filed August 18, 2011).

10.27^		Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC, dated May 17, 2011 (incorporated by reference to Exhibit 10.27 of the Company’s Quarterly Report on Form 10-Q, filed August 18, 2011).

10.27a		First Amendment to the Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC, (dated May 17, 2011), dated June 14, 2011 (incorporated by reference to Exhibit 10.27a of the Company’s Quarterly Report on Form 10-Q, filed August 18, 2011).

10.27b		Second Amendment to the Purchase and Sale Agreement by and between American Eagle Energy Inc., Eternal Energy Corp. and NextEra Energy Gas Producing, LLC (dated May 17, 2011), dated June 25, 2011 (incorporated by reference to Exhibit 10.27b of the Company’s Quarterly Report on Form 10-Q, filed August 18, 2011).

31.1*		Certification of President and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of President and Treasurer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

^ Portions omitted pursuant to a request for confidential treatment.

SIGNATURES

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

AMERICAN EAGLE ENERGY INC.
(Registrant)
August 18, 2011	/s/ Richard Findley
November 18, 2011	/s/ Richard Findley
	Richard Findley
	President, Secretary, Treasurer and Director
	(Chief Executive Officer, Chief Financial Officer and
	Chief Accounting Officer)

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