Unassociated Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:  September 30, 2010
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission File Number 0-22723
 
AMERICAN PETRO-HUNTER INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
98-0171619
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification Number)
     
17470 North Pacesetter Way
Scottsdale, AZ  85255
(Address of principal executive offices) (Zip Code)
 
 
(480) 305-2052
 
(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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes   ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ¨ Yes   ¨ 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.
 
¨
 Large accelerated filer
¨
 Accelerated filer
¨
 Non-accelerated filer
 (Do not check if smaller
 reporting company)
x
 Smaller Reporting  company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).¨ Yes   x No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding at November 12, 2010
Common stock, $.001 par value
 
27,060,561



AMERICAN PETRO HUNTER INC.
FORM 10-Q

September 30, 2010

INDEX

 
PAGE
PART I—FINANCIAL INFORMATION
 
   
Item 1.  Financial Statements.
4
   
Condensed Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009 Audited).
4
   
Condensed Statements of Operations for the three and nine month periods ended September
30, 2010 and 2009 and for the period from January 24, 1996 (inception) to September 30, 2010 (Unaudited)
5
   
Condensed Statements of Cash Flows for the nine month periods ended September 30, 2010
and 2009 and for the period from January 24, 1996 (inception) to September 30, 2010 (Unaudited)
6
   
Condensed Statements of Stockholders’ Equity (Deficit) for the nine month period ended
September 30, 2010 and for the period from January 24, 1996 (inception) to September 30, 2010 (Unaudited) )
7
   
Notes to Financial Statements
8
   
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 
16
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
20
   
Item 4.  Controls and Procedures
21
   
PART II—OTHER INFORMATION
 
   
Item 1.  Legal Proceedings
22
   
Item 1A.  Risk Factors
22
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
22
   
Item 3.  Defaults Upon Senior Securities
22
   
Item 4.  Reserved
22
   
Item 5.  Other Information
22
   
Item 6.  Exhibits
23
   
Signatures
24
 
2

 
EXPLANATORY NOTE

This Quarterly Report on Form 10-Q/A amends the Quarterly Report on Form 10-Q of American Petro-Hunter, Inc., a Nevada corporation (the “Company,” “we,” “us,” or “our”) originally filed with the SEC on November 15, 2010, to among other things, to revise the discussion of our oil and gas properties in Note 2 to the financial statements and to revise Note 4 to the financial statements - Investments in Mineral Properties.
 
FORWARD-LOOKING STATEMENTS
 
This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report.  Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms, or the negative of such terms.  Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements.  Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters.  Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs, and the risk factors set forth under the heading “Risk Factors” in our Annual report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 26, 2010.
 
YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS
 
The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q.  Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.  You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we expect or hope.
 
3

 
PART I—FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
Amerian Petro-Hunter, Inc.
(A Development Stage Company)
Condensed Balance Sheets
 
             
   
(Unaudited)
       
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Assets
           
             
Current assets:
           
Cash
  $ 3,307     $ 38,021  
Accounts receivable
    12,941       5,018  
Other receivable
    -       13,184  
Taxes recoverable
    2,111       2,111  
Prepaid expenses
    2,200       -  
Total current assets
    20,559       58,334  
                 
Investments in mineral properties
    930,964       708,434  
                 
Total assets
  $ 951,523     $ 766,768  
                 
Liabilities and Stockholders' (Deficit)
               
                 
Liabilities:
               
Accounts payable and other liabilities
  $ 257,424     $ 184,602  
Note payable
    39,304       35,977  
Convertible debenture
    1,334,783       -  
Accrued interest on convertible debenture
    79,499       -  
Convertible debenture, net of discount of $0 and $384,021
    633,306       599,285  
Accrued interest on convertible debenture
    9,750       -  
Loan guarantee
    94,860       94,860  
Total liabilities
    2,448,926       914,724  
                 
Stockholders' equity
               
Common stock, $0.001 par value, 200,000,000 shares authorized,
               
27,060,561 and 23,748,561 shares issued and outstanding as
               
of September 30, 2010 and December 31, 2009, respectively
    27,061       23,749  
Common stock to be issued; 542,857 and 1,830,825 as of
               
September 30, 2010 and December 31, 2009, respectively
    543       1,831  
Additional paid-in capital
    5,833,288       5,110,636  
Accumulated comprehensive gain (loss)
    (8,114 )     (8,114 )
(Deficit) accumulated during development stage
    (7,350,181 )     (5,276,058 )
Total stockholders' (deficit)
    (1,497,403 )     (147,956 )
                 
Total liabilities and stockholders' (deficit)
  $ 951,523     $ 766,768  

The accompanying notes are an integral part of these financial statements.
4


Amerian Petro-Hunter, Inc.
(A Development Stage Company)
Condensed Statements of Operations
 
 
For the three months ended
   
For the nine months ended
   
from January 24,
 
   
September 30,
   
September 30,
   
1996 (inception) to
 
   
2010
   
2009
   
2010
   
2009
   
September 30, 2010
 
                               
                               
Revenue
  $ 37,840     $ 54,981     $ 57,963     $ 54,981     $ 135,691  
                                         
Cost of Goods Sold
                                       
Production expenses
    23,463       2,491       34,834       2,491       47,924  
                                         
Gross profit
    14,377       52,490       23,129       52,490       87,767  
                                         
                                         
General and administrative
    106,141       81,314       306,319       282,225       2,458,655  
Executive compensation
    79,000       63,000       364,000       135,749       937,237  
Rent
    12,532       179       33,697       379       93,910  
Impairment expense
    642,260       516,150       759,160       516,150       1,859,340  
Total expenses
    839,933       660,643       1,463,176       934,503       5,349,142  
                                         
Net loss before other income (expense)
    (825,556 )     (608,153 )     (1,440,047 )     (882,013 )     (5,261,375 )
                                         
Other income (expense):
                                       
Interest expense
    (179,218 )     (80,949 )     (634,076 )     (84,784 )     (899,516 )
Loan placement fee
    -       -       -       (238,227 )     (238,227 )
Loss from loan guarantee
    -       -       -       -       (84,858 )
Loss from settlement of debt
    -       -       -       (14,971 )     (14,971 )
Income from debt forgiveness
    -       -       -       -       85,960  
Total other income (expenses)
    (179,218 )     (80,949 )     (634,076 )     (337,982 )     (1,151,612 )
                                         
Net loss from continuing operations
    (1,004,774 )     (689,102 )     (2,074,123 )     (1,219,995 )     (6,412,987 )
                                         
Net loss from discontinued operations
    -       -       -       -       (937,194 )
                                         
Net loss
    (1,004,774 )     (689,102 )     (2,074,123 )     (1,219,995 )     (7,350,181 )
                                         
                                         
Foreign currency translation gain
    -       (16,497 )     -       20,221       (8,114 )
                                         
Comprehensive loss
  $ (1,004,774 )   $ (705,599 )   $ (2,074,123 )   $ (1,199,774 )   $ (7,358,295 )
                                         
                                         
common shares outstanding
                                 
basic and fully diluted
    27,060,561       23,039,770       26,170,218       19,182,852          
                                         
Net (loss) per share
basic and fully diluted
    (0.037 )     (0.031 )   $ (0.079 )   $ (0.063 )        
                                         

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

5

 
Amerian Petro-Hunter, Inc.
(A Development Stage Company)
Condensed Statement of Cash Flows
 
                   
                   
               
For the Period
 
 
For the nine months ended
   
from January 24,
 
 
September 30,
         
1996 (inception) to
 
 
2010
   
2009
   
September 30, 2010
 
Cash flows from operating activities
                 
Net loss
  $ (2,074,123 )   $ (1,219,995 )   $ (7,350,181 )
Adjustments to reconcile net (loss) to net cash used in oerating activities:
                 
Accrued interest on notes payable
    3,325       1,472       19,724  
(Gain) loss from loan guarantee
    -       4,447       94,860  
Warrants issued for services
    -       238,227       366,227  
Shares issued for services and compensation
    170,000       -       1,162,558  
Amortization of discount
    384,022       52,199       581,627  
Impairment expense
    759,160       -       1,531,889  
Accrued interest on convertible debenture
    89,249       516,150       89,249  
Changes in operating assets and liabilities:
                       
(Increase) decrease in accounts receivable
    (7,923 )     (9,642 )     (12,941 )
(Increase) decrease in other receivable
    13,184       -       -  
(Increase) decrease in taxes recoverable
    -       (108 )     (2,111 )
(Increase) decrease in prepaid expenses
    (2,200 )     -       (2,200 )
Increase (decrease) in accounts payable and other liabilities
    72,822       152,855       2,035,785  
Increase (decrease) in due to related parties
    -       (123,852 )     (107,170 )
Net cash (used) by operating activities
    (592,484 )     (388,247 )     (1,592,684 )
                         
Cash flows from investing activities
                       
Acquisition of investments in mineral properties
    (981,689 )     (1,093,758 )     (2,455,352 )
Net cash provided by investing activities
    (981,689 )     (1,093,758 )     (2,455,352 )
                         
Cash flows from financing activities
                       
Proceeds from sale of common stock, net of share issuance costs
    155,000       262,132       803,168  
Proceeds from warrant exercise
    49,676       -       695,200  
Puchase of common shares for promissory note
    -       219,863       -  
Proceeds from note payable
    -       106,779       243,000  
Proceeds from convertible debenture
    1,334,783       999,985       2,334,783  
Payments for convertible debenture
    -       -       (16,694 )
Net cash provided by financing activities
    1,539,459       1,588,759       4,059,457  
                         
Foreign currency translation effect on cash
    -       20,221       (8,114 )
                         
Net increase (decrease) in cash
    (34,714 )     126,975       3,307  
Cash - beginning
    38,021       136       -  
Cash - ending
  $ 3,307     $ 127,111     $ 3,307  
                         
Supplemental disclosures:
                       
Interest paid
  $ 88,500     $ -     $ 88,500  
Income taxes paid
  $ -     $ -     $ -  
                         
Non-cash transactions:
                       
Warrants issued for services
  $ -     $ -     $ 366,227  
Shares issued for services and compensation
  $ 170,000     $ -     $ 1,162,558  
Note payable converted to common stock
  $ 350,000     $ -     $ 569,864  
Accounts payable converted to common stock
  $ -     $ -     $ 165,082  
 
The accompanying notes are an integral part of these financial statements.

6

 
 
 
Amerian Petro-Hunter, Inc.
Condensed Statement of Stockholder's Equity (Deficit)
 
                           
Deficit
             
                           
accumulated
         
Total
 
   
Common Stock
         
Additional
   
Common
   
during the
   
Accumulated
   
Stockholder's
 
               
Paid-in
   
Stock to
   
development
   
Comp.
   
Equity
 
   
Shares
   
Amount
   
Capital
   
be issued
   
stage
   
gain(loss)
   
(Deficit)
 
                                           
Shares issued for cash, net of issue costs
    10,497,300     $ 10,497     $ 296,833     $ -     $ -     $ -     $ 307,330  
Net income
    -       -       -       -       4,856       -       4,856  
Balance at December 31, 1996
    10,497,300       10,497       296,833       -       4,856       -       312,186  
                                                         
Shares issued for cash, net of issue costs
    187,416       187       46,850       -       -       -       47,037  
Net loss
    -       -       -       -       (96,386 )     -       (96,386 )
Unrealized foreign exchange gain
    -       -       -       -       -       8,258       8,258  
Balance at December 31, 1997
    10,684,716       10,684       343,683       -       (91,530 )     8,258       271,095  
                                                         
Stock reverse split 3:1
    (7,123,094 )     (7,123 )     7,123       -       -       -       -  
Shares issued
    7,773,026       7,773       1,980,833       -       -       -       1,988,606  
Unrealized foreign exchange loss
    -       -       -       -       -       (8,258 )     (8,258 )
Net loss
    -       -       -       -       (1,798,830 )     -       (1,798,830 )
Balance at December 31, 1998
    11,334,648       11,334       2,331,639       -       (1,890,360 )     -       452,613  
                                                         
1998 issuance cancelled
    (4,800,000 )     (4,800 )     (1,339,200 )     -       -       -       (1,344,000 )
Share issue costs
    500,000       500       85,000       -       -       -       85,500  
Net loss
    -       -       -       -       (307,331 )     -       (307,331 )
Balance at December 31, 1999
    7,034,648       7,034       1,077,439       -       (2,197,691 )     -       (1,113,218 )
                                                         
Shares issued
    4,435,570       -       1,083,791       -       -       -       1,083,791  
Finders' fees
    -       -       48,000       -       -       -       48,000  
Share purchase warrants
    -       -       80,000       -       -       -       80,000  
Net loss
    -       -       -       -       (547,097 )     -       (547,097 )
Balance at December 31, 2000
    11,470,218       7,034       2,289,230       -       (2,744,788 )     -       (448,524 )
                                                         
Stock reverse split 10:1
    (10,323,196 )     (5,887 )     5,887       -       -       -       -  
Shares issued
    4,253,617       4,254       552,106       -       -       -       556,360  
Net loss
    -       -       -       -       (297,352 )     -       (297,352 )
Balance at December 31, 2001
    5,400,639       5,401       2,847,223       -       (3,042,140 )     -       (189,516 )
                                                         
Shares issued
    220,000       220       21,780       -       -       -       22,000  
Net loss
    -       -       -       -       (29,664 )     -       (29,664 )
Balance at December 31, 2002
    5,620,639       5,621       2,869,003       -       (3,071,804 )     -       (197,180 )
                                                         
Shares issued
    430,000       430       25,370       -       -       -       25,800  
Other comprehensive loss
    -       -       -       -       17,920       (17,920 )     -  
Net loss
    -       -       -       -       (57,652 )     -       (57,652 )
Balance at December 31, 2003
    6,050,639       6,051       2,894,373       -       (3,111,536 )     (17,920 )     (229,032 )
                                                         
Shares issued for services rendered
    475,000       475       56,525       -       -       -       53,774  
Other comprehensive loss
    -       -       -       -       -       (9,773 )     (9,773 )
Net loss
    -       -       -       -       (134,058 )     -       (134,058 )
Balance at December 31, 2004
    6,525,639       6,526       2,950,898       -       (3,245,594 )     (27,693 )     (319,089 )
                                                         
Shares issued for services rendered
    -       -       -       -       -       -       3,226  
Shares issued for cash
    1,739,380       1,739       85,230       -       -       -       86,969  
Other comprehensive loss
    -       -       -       -       -       (6,156 )     (6,156 )
Net loss
    -       -       -       -       (70,711 )     -       (70,711 )
Balance at December 31, 2005
    8,265,019       8,265       3,036,128       -       (3,316,305 )     (33,849 )     (305,761 )
                                                         
Other comprehensive loss
    -       -       -       -       -       (6,380 )     (6,380 )
Net loss
    -       -       -       -       (72,398 )     -       (72,398 )
Balance at December 31, 2006
    8,265,019       8,265       3,036,128       -       (3,388,703 )     (40,229 )     (384,539 )
                                                         
Other comprehensive loss
    -       -       -       -       -       (49,031 )     (49,031 )
Share subscription received in advance
    -       -       -       60,000       -       -       60,000  
Net loss
    -       -       -       -       (107,554 )     -       (107,554 )
Balance at December 31, 2007
    8,265,019       8,265       3,036,128       60,000       (3,496,257 )     (89,260 )     (481,124 )
                                                         
Share issued for subscription recd in 07
    1,200,000       1,200       58,800       (60,000 )     -       -       -  
Common stock sold at $0.05 per share
    600,000       600       29,400       -       -       -       30,000  
Share subscription received in 2008
    -       -       -       40,000       -       -       40,000  
Other comprehensive gain
    -       -       -       -       -       81,146       81,146  
Net loss
    -       -       -       -       (123,823 )     -       (123,823 )
Balance at December 31, 2008
    10,065,019       10,065       3,124,328       40,000       (3,620,080 )     (8,114 )     (453,801 )
                                                         
Shares owed at December 31, 2008 issued
    800,000       800       39,200       (40,000 )     -       -       -  
Shares issued for cash
    2,250,000       2,250       42,750       -       -       -       45,000  
Shares issued for accts payable conversion
    8,254,088       8,254       156,828       -               -       165,082  
Shares issued for notes payable conversion
    879,454       880       218,984       -       -       -       219,864  
Warrants issued for services
    -       -       238,227       -       -       -       238,227  
Warrant exercise
    1,500,000       1,500       223,500       -       -       -       225,000  
Shares sold for cash, not issued at year-end
    -       -       66,310       190       -       -       66,500  
Warrant exercise, not issued yet at year-end
    -       -       418,883       1,641       -       -       420,524  
Warrants issued with debt
    -       -       581,626       -       -       -       581,626  
Net loss
    -       -       -       -       (1,655,978 )     -       (1,655,978 )
Balance at December 31, 2009
    23,748,561     $ 23,749     $ 5,110,636     $ 1,831     $ (5,276,058 )   $ (8,114 )   $ (147,956 )
                                                         
Shares issued for executive compensation
    250,000       250       169,750                               170,000  
Shares issued from shares to be issued
    1,830,825       1,831               (1,831 )                     -  
Exercise of Warrants
    231,175       231       34,445                               34,676  
Shares issued for convertible debt
    1,000,000       1,000       349,000                               350,000  
Shares sold for cash
                    154,557       443                       155,000  
Exercise of Warrants
                    14,900       100                       15,000  
Net loss
                                    (2,074,123 )             (2,074,123 )
                                                         
Balance at September 30, 2010
    27,060,561     $ 27,061     $ 5,833,288     $ 543     $ (7,350,181 )   $ (8,114 )   $ (1,497,403 )
 
The accompanying notes are an integral part of these financial statements.
 
7

 
American Petro-Hunter Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010

1. 
Nature and Continuance of Operations
American Petro-Hunter Inc. (the “Company”) was incorporated in the State of Nevada on January 24, 1996 as Wolf Exploration Inc. On March 17, 1997, Wolf Exploration Inc. changed its name to Wolf Industries Inc.; on November 21, 2000, they changed its name to Travelport Systems Inc., and on August 17, 2001, changed its name to American Petro-Hunter Inc.

The Company is evaluating the acquisition of certain natural resource projects with the intent of developing such projects. The Company focus is currently in locating and assessing potential acquisition targets, including real property, oil and gas companies.

Going Concern
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company is at a development stage and has minimal revenues, has limited assets and has accumulated deficit and comprehensive losses during the development period of $7,350,181 and requires additional funds to maintain its operations. Management’s plan in this regard is to raise equity financing as required. There can be no assurance that sufficient funding will be obtained. The foregoing matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
 
Development Stage Activities
The Company is in the development stage.  We have had minimal revenue from our current operations.  To generate revenue, our new business plan is to focus development of our natural resource projects.  Based upon our business plan, we are a development stage enterprise.  Accordingly, we present our financial statements in conformity with the accounting principles generally accepted in the United States of America that apply in establishing operating enterprises.  As a development stage enterprise, we disclose the deficit accumulated during the development stage and the cumulative statements of operations and cash flows from our inception to the current balance sheet date.

2.  
Significant Accounting Policies
The following is a summary of significant accounting policies used in the preparation of these financial statements.

Principles of accounting
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

Income taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-5”).  Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
Revenue Recognition
It is our policy that revenues will be recognized in accordance with ASC subtopic 605-10 (formerly SEC Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition.”).  Under ASC 605-10, product revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed and determinable and collectability is reasonably assured.
 
8

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

Net loss per share
In accordance with ASC subtopic 260-10, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding.  Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, notes payable and loan guarantee. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values because of their relatively short-term maturities.  See Note 5 for further details.

Reclassifications
Certain comparative figures have been reclassified to conform to the current period’s presentation.

Oil and Gas Properties
We follow the successful efforts method of accounting for oil and gas exploration and production activities.  All costs for development wells, related plant and equipment, proved mineral interests in oil and gas properties are capitalized.  Costs of exploratory wells are capitalized pending determination of whether the wells found proved reserves.  Cost of wells that are assigned proved reserves remain capitalized. All other exploratory wells and costs are expensed.
 
Depreciation, depletion and amortization of all capitalized costs of proved oil and gas producing properties are expensed using the straight-line method over the life of each well.   Period valuation provisions for impairment of capitalized costs of unproved mineral interests are expensed. The costs of unproved properties are excluded from amortization until the properties are evaluated.
 
Unproved properties are assessed periodically individually when drilling and flow testing results indicate whether there is an economic resource or not. All capitalized costs associated with properties that have been determined to be a “dry-hole” are impaired when that determination is made. Proved properties are assessed periodically for impairment on an individual basis.  Events that can trigger the test for possible impairment include significant decreases in the market value of a property, significant change in the extent or manner of use or change in property and the expectation that a property will be sold or otherwise disposed of significantly sooner than the previously estimated useful life.  The assessment is done by comparing each property’s carrying value to their associated estimated undiscounted future net cash flows.  Impaired properties are written down to their estimated fair values.  The resulting impairment would be expensed to operations as impairment expense in the period in which it was determined that the impairment was indicated and calculated.
 
3. 
Recent Accounting Pronouncements
The FASB issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent Events”), incorporating guidance on subsequent events into authoritative accounting literature and clarifying the time following the balance sheet date which management reviewed for events and transactions that may require disclosure in the financial statements.  The Company has adopted this standard.  The standard increased our disclosure by requiring disclosure reviewing subsequent events.  ASC 855-10 is included in the “Subsequent Events” accounting guidance.
 
9

 
In April 2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position No. FAS 157-4, Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). ASC 820-10 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. The Company determined that adoption of FSP 157-4 did not have a material impact on its results of operations and financial position. 

In July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes”). ASC 740-10 sets forth a recognition threshold and valuation method to recognize and measure an income tax position taken, or expected to be taken, in a tax return. The evaluation is based on a two-step approach. The first step requires an entity to evaluate whether the tax position would “more likely than not,” based upon its technical merits, be sustained upon examination by the appropriate taxing authority. The second step requires the tax position to be measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. In addition, previously recognized benefits from tax positions that no longer meet the new criteria would no longer be recognized. The application of this Interpretation will be considered a change in accounting principle with the cumulative effect of the change recorded to the opening balance of retained earnings in the period of adoption. Adoption of this new standard did not have a material impact on our financial position, results of operations or cash flows.

In April 2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”) 07-05, "Determining whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock"). ASC815-40 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. ASC 815-40 is effective for financial statements issued for fiscal years beginning after December 15, 2008.  The adoption of this pronouncement did not have a material impact on its financial position, results of operations or cash flows.

In June 2009, the FASB issued ASC 105 Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification TM (the “Codification”) has become the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”). All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. Rules and interpretive releases of the SEC issued under the authority of federal securities laws, however, will continue to be the source of authoritative generally accepted accounting principles for SEC registrants. Effective September 30, 2009, all references made to GAAP in our consolidated financial statements will include references to the new Codification. The Codification does not change or alter existing GAAP and, therefore, will not have an impact on our financial position, results of operations or cash flows.

In June 2009, the FASB issued changes to the consolidation guidance applicable to a variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity's economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009. This will not have an impact on the Company’s financial position, results of operations or cash flows.

In June 2009, the FASB issued Financial Accounting Standards Codification No. 860 - Transfers and Servicing. FASB ASC No. 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. FASB ASC No. 860 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The adoption of FASB ASC No. 860 will not have an impact on the Company’s financial statements.
 
10


 
International Financial Reporting Standards
In November 2008, the Securities and Exchange Commission (“SEC”) issued for comment a proposed roadmap regarding potential use of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Under the proposed roadmap, the Company would be required to prepare financial statements in accordance with IFRS in fiscal year 2014, including comparative information also prepared under IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential impact of IFRS on its financial statements and will continue to follow the proposed roadmap for future developments.

4. 
Investments in Mineral Properties
During the nine months ended September 30, 2010, the Company made eight investments in the amount of $981,689.  During the year ended December 31, 2009, the Company made nine investments in natural resource projects in the amount of $1,473,663.  Several of those investments produced “dry holes” and were therefore fully impaired.  During the period ended September 30, 2010 and December 31, 2009, impairment expense related to these “dry holes” was $116,900 and $765,229, respectively.  During the period ended September 30, 2010, an additional $642,260 of impairment expense was taken in relation to a property that was sold at a loss subsequent to September 30, 2010.  The property was impaired down to its subsequent sales price in order to realize the loss in valuation during this period.  Total impairment expense for the nine months ended September 30, 2010 was $759,160.  As of September 30, 2010, the Company has investments, valued at cost, of $930,964; $96,947 in proved wells and $834,017 in unproved wells.  At December 31, 2009, the Company has investments, valued at costs of $708,434; $109,124 in proved wells and $599,310 in unproved wells.  Capitalized costs of proved properties are amortized and expensed using the straight-line method over the estimated useful life of each well.   Unproved properties are excluded from amortization.  Amortization expense was not taken in the year ended December 31, 2009 and the nine months ended September 30, 2010 because it was immaterial to the overall financials.  A summary of investments follows:
 
S&W Oil & Gas, LLC - Poston Prospect
On May 4, 2009, the Company entered into a binding Letter of Intent (“LOI”) with S&W Oil & Gas, LLC (“S&W”) to participate in the drilling for oil in the Poston Prospect #1 Lutters in Southwest Trego County, Kansas (the “Poston Prospect”).  Pursuant to the LOI, the Company paid S&W $64,500 in exchange for a 25% working interest in the 81.5% net revenue interest in the Poston Prospect.  During the year ended December 31, 2009, an additional $44,624 was paid for completion of the oil well and for the purchase of necessary equipment.    During the nine months ended September 30, 2010, the Company paid an additional $106,167 for drilling and completion costs of a second well on this property.

S&W Oil & Gas, LLC – Rooney Prospect
On June 19, 2009, the Company entered into a binding LOI with S&W to participate in the drilling for oil and natural gas in the Rooney Prospect located in southwestern Ford County, Kansas.  Pursuant to the LOI, the Company paid S&W a total of $113,333 for land acquisition and leasing costs, $216,697 for the 3D seismic shoot costs, and $392,231 for completion of the oil well and the purchase of necessary equipment in exchange for a 50% working interest in the 81.5 net revenue interest of the project.  As of September 30, 2010, total costs associated with this property were $722,260.  Subsequent to September 30, 2010, this property was sold for $80,000.  During the nine months ended September 30, 2010, an impairment charge of $642,260 was taken on this property to bring the total capitalized costs in-line with its market value.

Oklahoma
During the nine months ended September 30, 2010, the Company entered into an agreement with Bay Petroleum to purchased working interests in several properties in Oklahoma and advanced funds for lease purchases.  The Company paid Bay Petroleum $647,850 in exchange for 25% to 50% working interest in the net revenue of the project.
 
11

 
5. 
Fair Value Measurements
The Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair value of certain of its financial assets required to be measured on a recurring basis.  The adoption of ASC Topic 820-10 did not impact the Company’s financial condition or results of operations.  ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability.  The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2 – Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3 – Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of September 30, 2010:

   
Level 1
   
Level 2
   
Level 3
   
Fair Value
 
Cash
  $ 3,307     $ -     $ -     $ 3,307  
Accounts & other receivables
    -       12,941       -       12,941  
Prepaid expenses
    -       2,200       -       2,200  
Accounts payable
    -       257,424       -       257,424  
Notes payable
    -       39,304       -       39,304  
Loan Guarantee
    -       94,860       -       94,860  
Total
  $ 3,307       406,729     $ -     $ 410,036  

6. 
Debt and Debt Guarantee

Notes Payable
As of September 30, 2010 and December 31, 2009, the Company has a note payable of $25,000 bearing interest at 12% per annum collateralized by a general security arrangement over all of the Company’s assets.  The note was payable in full on May 18, 2007 and is therefore in default as of September 30, 2010.  During nine months ended September 30, 2010 and the year ended December 31, 2009, the Company accrued interest expense of $3,327 and $3,855, respectively.  As of September 30, 2010 and December 31, 2009, the balance of the note payable, including accrued interest, is $39,304 and $35,977, respectively.

During the year ended December 31, 2009, the Company received $218,000 from the issuance of a convertible note payable.  The note paid 6% interest, was due on April 14, 2011, and was convertible at $0.25 per share.  The note accrued interest of $1,863 before the principle and accrued interest balance of $219,864 was converted into 879,454 shares of common stock during the year ended December 31, 2009.  As of September 30, 2010, nothing is due relating to this note payable.

Convertible Debentures
 
In August and September of 2009, the company received $1,000,000 from an investor to issue a convertible debenture, bearing interest at a rate of 18% per annum paid monthly on any unpaid principle balance to the investor, secured by the assets of the Company.  $500,000 of the debenture was due on August 13, 2010 and the other $500,000 was due on September 15, 2010.  Subsequent to September 30, 2010, the Company amended the promissory note to extend the repayment date of the first to August 13, 2011 and the second to September 15, 2011.  The debenture calls for monthly interest payments to the investor until the debenture is fully paid.  The holder of the convertible debenture has the right to convert any portion of the unpaid principle and/or accrued interest at any time at the lower of $0.35 per share or a 25% discount to the average closing price of the five proceeding days.  In relation to the debentures, the Company issued 2,857,142 warrants to purchase common shares of the Company for $0.50 per share. The warrants have a term of two years.  Interest payments continue to be made. Subsequent to September 30, 2010, the Company and Holder agreed to reduce the initial conversion price from $0.35 per share to $0.25 per share.
 
12

 
The warrants issued and beneficial conversion feature associated with the above convertible debentures were valued using the black scholes option pricing model and bifurcated out of the debenture proceeds and recorded as additional paid in capital in the amount of $581,626.  A discount on the convertible debenture was recorded in the same amount and will be amortized into interest expense over the life of the debenture using the interest method.  For the nine months ended September 30, 2010 and the year ended December 31, 2009, $384,021 and $197,605, respectively, was amortized into interest expense in relation to these discounts.  In March 2010, $350,000 of the debenture balance was converted to 1,000,000 shares of stock.  As of September 30, 2010 and December 31, 2009, the balance due on the convertible debentures, net of the discount of $0 and $384,021, was $633,306 and $599,285, respectively.
 
During the nine months ended September 30, 2010, the company received $1,334,783 from an investor to issue a convertible debenture, bearing interest at a rate of 24% per annum.  The note is due May 17, 2011.  The holder of the convertible debenture has the right to convert any portion of the unpaid principle and/or accrued interest at any time at the conversion price of $0.90.  As of September 30, 2010, the balance due on the convertible debenture was $1,414,282, including accrued interest of $79,499.   Subsequent to September 30, 2010, the Company amended the agreement to reduce the conversion price applicable to the conversion from $0.90 per share to $0.25 per share.
 
Loan Guarantee
In 2004, the Company received a demand for payment from Canadian Western Bank (“CWB”) pursuant to a guarantee provided by the Company in favor of Calgary Chemical, a former subsidiary.  The Company divested itself of Calgary Chemical in 1998 under an agreement with a former president and purchaser. The agreements included an indemnity guarantee from the purchaser of Calgary Chemical, whereby the purchaser would indemnify and save harmless the Company from any and all liability, loss, damage or expenses.  Upon receipt of the demand, the Company accrued the amount of the claim since in the opinion of legal counsel it is more likely than not that CWB would prevail in this action.

Interest expense
Interest expense related to all of the above items for the nine months ended September 30, 2010 and 2009 was $634,076 and $84,784, respectively.

7. 
Stockholders’ Equity Transactions

Common Stock
During the year ended December 31, 2009, the Company issued 800,000 shares of common stock that was owed but not issued as of December 31, 2008.

During the year ended December 31, 2009, the Company issued 2,250,000 units at a price of $0.02 per share for cash.

During the year ended December 31, 2009, the Company issued 8,254,088 shares at a price of $0.02 per share to convert $165,082 of accounts payable.

During year ended December 31, 2009, the Company issued 879,454 shares at a price of $0.25 per share to convert a note payable balance of $219,864 (See Note 6).

During year ended December 31, 2009, the Company issued 1,500,000 shares of common stock in an exercise of 1,500,000 warrants at a price of $0.15 for total proceeds of $225,000.

During the year ended December 31, 2009, the Company sold 190,000 shares of common stock for $66,500 cash.  As of December 31, 2009, these shares have not been issued and are shown as common stock owed but not issued.
 
13

 
During the year ended December 31, 2009, the Company received $420,524 for the exercise of 1,640,825 warrants to purchase 1,640,825 shares of common stock.  As of December 31, 2009, these shares have not been issued and are shown as common stock owed but not issued.

During the quarter ended March 31, 2010, the Company issued 190,000 shares of common stock that was owed but not issued as of December 31, 2009.

During the quarter ended March 31, 2010, the Company issued 1,640,825 shares of common stock that was owed but not issued as of December 31, 2009.

During the quarter ended March 31, 2010, the Company issued 250,000 shares to Directors in lieu of executive compensation of $170,000.

During the quarter ended March 31, 2010, the Company issued 231,175 shares of common stock in an exercise of 231,175 warrants at a price of $0.15 for total proceeds of $34,676.

During the quarter ended March 31, 2010, the Company issued 1,000,000 shares of common stock in exchange for $350,000 of convertible debt. (See Note 6).

During the quarter ended March 31, 2010, the Company received $155,000 for the purchase of 442,857 shares of common stock and 442,857 warrants with an exercise price of $0.50.  As of June 30, 2010, these shares have not been issued and are shown as common stock owed but not issued.

During the quarter ended March 31, 2010, the Company received $15,000 for the exercise of 100,000 warrants to purchase 100,000 shares of common stock.  As of June 30, 2010, these shares have not been issued and are shown as common stock owed but not issued.

There has been no stock activity in the remainder of the nine months ended September 30, 2010.

As of September 30, 2010 and December 31, 2009, there are 27,060,561 and 23,748,561 shares of common stock outstanding, respectively, and 542,857 and 1,830,825 shares of common stock owed but not issued, respectively.

Warrants
As of December 31, 2008, there were 2,600,000 warrants outstanding at an exercise price of $0.15.

During the year ended December 31, 2009, the Company issued 2,857,142 warrants with a convertible debenture.    These warrants have 2 year terms expiring in August and September of 2011 and an exercise price of $0.50.  See Note 6 for further details.

During the year ended December 31, 2009, the Company issued 1,672,000 warrants for services.  The warrants had two-year terms and an exercise price of $0.35.  The warrants were valued using the black scholes option pricing model and valued at $238,227.  800,000 of these warrants were cancelled during the year when the service was not performed.

During year ended December 31, 2009, a total of 3,140,825 warrants were exercised into common shares of the Company at a price of $0.15 and $0.35 per share to a total of $645,524 cash.

During the quarter ended March 31, 2010, a total of 331,175 warrants were exercised into common shares of the Company at a price of $0.15 per share to a total of $49,676.

During the quarter ended March 31, 2010, the Company issued 442,857 warrants with an exercise price of $0.50.

As of September 30, 2010, there are 3,299,999 warrants outstanding at an exercise price of $0.50.  These warrants will expire in the year ending December 31, 2011.
 
14

 
8. 
Income Taxes
The Company follows ASC subtopic 740-10 (formerly Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes”) for recording the provision for income taxes.  ASC 740-10 requires the use of the asset and liability method of accounting for income taxes.  Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled.  Deferred income tax expenses or benefits are based on the changes in the asset or liability each period.  If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized.  Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.  Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate.  Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.

The Company’s effective income tax rate is higher than would be expected if the federal statutory rate were applied to income before tax, primarily because of expenses deductible for financial reporting purposes that are not deductible for tax purposes during the year ended December 31, 2009. The Company’s operations for the year ended December 31, 2009 and 2008 resulted in losses, thus no income taxes have been reflected in the accompanying statements of operations.

As of September 30, 2010, the Company has net operating loss carry-forwards of approximately $7,350,000 (December 31, 2009 - $4,510,829) which may or may not be used to reduce future income taxes payable. Current Federal Tax Law limits the amount of loss available to offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.  A valuation allowance has been recorded to reduce the net benefit recorded in the financial statements related to this deferred asset. The valuation allowance is deemed necessary as a result of the uncertainty associated with the ultimate realization of these deferred tax assets.

9. 
Subsequent Events
 
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. On November 13, 2010, the Company entered into a second amendment to the Convertible Debenture with Maxum whereby the parties agreed to reduce the conversion price applicable so such conversion from $0.90 per share to $0.25 per share.  On November 13, 2010, The Company entered in to an amendment to Promissory notes to amend the notes to extend the repayment date of the first note to August 13, 2011 and the repayment date of the second note to September 15, 2011.  The Company and Holder agreed to reduce the initial conversion price from $0.35 per share to $0.25 per share.
 
15

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this quarterly report.  Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments.  Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change.  These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf.  We disclaim any obligation to update forward-looking statements.
 
Background
 
We are an oil and natural gas exploration and production (E&P) company with current projects in California, Kansas and Oklahoma.  As of September 30, 2010, we had no producing wells in California, two producing wells in Kansas and one producing well in Oklahoma, and rights for the exploration and production of oil and gas on more than an aggregate of approximately 11,613 acres in those states.  Subsequent to our quarterly period ended September 30, 2010, we had a second well ready to begin production in Oklahoma.  Typically, our interest in a well arises from a contract with another entity pursuant to which we provide financial support for certain costs incurred in the exploration and development of a project, which may include land costs, seismic or other exploration, and test drilling.  In exchange, we typically receive an interest in the proceeds from the project’s production.
 
We were formed on January 24, 1996 pursuant to the laws of the State of Nevada under the name Wolf Exploration, Inc.  In August 2001, we changed our name to American Petro-Hunter, Inc and began focusing our business on the exploration and eventual exploitation of oil and gas.
 
On April 6, 2009, we entered into a Participation Agreement with Archer Exploration, Inc. (“Archer”) to participate in the drilling for natural gas on a prospect located in Stanislaus County, California.  Pursuant to the agreement, we agreed to pay to Archer $200,000 for all costs in connection with the acquisition and operation of the prospect until completion of an initial test well, which includes historic engineering and geological development of the prospect as well as costs for a seismic program required to finalize and define the initial well location, in exchange for a 25% working interest in the prospect.  The assignment of the 25% interest will only be made upon the successful completion of the initial test well.  The seismic shoot began on August 10, 2009.  The results of the seismic indicate the need to reprocess the data and potentially add additional seismic lines to identify the test well locations.  We are planning additional seismic shoots prior to December 2010 and the combined data packages will be used to evaluate whether there is a suitable location for a test well.
 
On May 4, 2009, we entered into a binding Letter of Intent with S&W Oil & Gas, LLC (“S&W”) to acquire a 25% working interest and 81.5% net revenue interest on all commercial production in the 750-acre Poston Prospect #1 Lutters oilfield in Southwest Trego County, Kansas, for a purchase price of $64,536, which we have paid.  On June 16, 2009, the #1 Lutters Well  was completed at a total depth of 4,400 feet, encountering both oil and gas over a 46 foot interval.  The oil was excellent quality 35 degree light oil and tests resulted in 65% oil cut with 10% gas and mud with no water.  Oil production on the #1 Lutters Well began on June 18, 2009.  Current production for the #1 Lutters Well is 20 barrels per day.  The next well planned for the Poston Project was designated as the #2 Lutters Well, which was drilled to a total depth of 4,320 feet where we encountered good oil shows during drilling and in initial drill stem tests from a target zone.  After further drilling, we encountered good oil shows but we did not complete drilling of the well for commercial production because of the oil’s permeability and porosity.  However, management believes the project itself remains viable as there are additional offset opportunities for this project.  On July 1, 2010 we announced completion of the #3 Lutters Well, at a depth of 4,328 feet, as a direct-offset to the #1 Lutters Well.  On July 14, 2010, we announced that the #3 Lutters Well had begun production.  The current daily rate of the #3 Lutters Well is 20 barrels per day. Collectively, 40 barrels per day is going into the tanks for sale. Production is being reviewed and may increase in the future as production stabilizes. 2 offset locations are available and we plan to drill additional wells in 2011.
 
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On June 11, 2009, we entered into a binding Letter of Intent with S&W to participate in the drilling for oil and natural gas in the 1,760-acre Brinkman Prospect located in Clark County, Kansas, approximately 20 miles south of Dodge City.  The project is proximal to historic oil production primarily from Marmaton Limestone with secondary objectives in the Morrow Sand.  Of significance, over 49,000 barrels have been produced from a seismic anomaly to the northeast of the chosen drilling location as well as Langdon Sands that has produced cumulative gas production in excess of 1 BCF.  We paid S&W a total of $22,833.28 for land acquisition, leasing, and seismic costs for a 25% working interest in the prospect.  In addition, we agreed to pay $56,466.66 to cover dry-hole cased drilling costs associated with the first exploratory oil well and 25% of all further going forward costs such as completion and related infrastructure costs.  If a successful commercial well is established, we will receive an 81.5% net revenue interest in the prospect.  On July 28, 2009, drilling on the Brinkman Prospect commenced and by August 14, 2009, drilling was completed.  Several oil and gas shows in the well were tested and deemed not commercially viable and were plugged and abandoned.  We may engage in future exploratory drilling at the Brinkman Prospect in the future, but no drilling is currently planned for the Brinkman Prospect in 2010.
 
On June 19, 2009, we entered into a binding Letter of Intent with S&W to participate in the drilling for oil and natural gas in the Rooney Project located in southwestern Ford County, Kansas.  The Rooney Project is located in southwestern Ford County, Kansas, which is 20 miles due south of Dodge City.  The project consists of eight sections totaling 7,040 acres.  The Rooney Project is directly adjacent to the north edge of existing Morrow Sand oil and gas production.  An analog well designated as 3-30-25W in the Morrow pool has cumulatively produced 344,448 barrels of oil and 933,622 MCF gas.  There are multiple wells within two miles of our acreage that have produced in the 35,000 to 40,000 barrel range from discrete sand channels.  It is these sand channels that we attempted to identify through the completion of a 3D seismic shoot across the entire acreage.  Based on the 3D seismic shoot, we developed a minimum of five target locations for new wells.  Under the terms of the agreement with S&W, we paid S&W a total of $113,333.12 for land acquisition and leasing costs.  We also agreed to pay up to $216,666.64 for the 3D seismic shoot costs that include processing and interpretation, as well as 50% of all further going-forward costs such as completion and related infrastructure costs.  S&W has assigned a 50% of the working interest and 81.5% net revenue interest in the prospect to us.
 
On November 12, 2009, drilling at the #24-1 Double H Oil Well site in the Rooney Project commenced, and on December 9, 2009, we announced that a 12-foot pay zone was encountered that produced excellent quality 44 degree oil in the tubing up to the surface from 5,400 feet of depth with fluid test results returning 99% oil cut.  On January 4, 2010, the #24-1 Double H well at the Rooney Prospect commenced oil production, and we entered into an oil purchase contract with the National Co-op Refinery Association of McPherson Kansas to purchase all production at the Rooney lease at a premium to Kansas common oil prices of $3.85 per barrel above the daily price.  This price premium reflects the quality of the 44 degree oil being produced at Rooney.  The #24-1 Double H Oil Well required a re-completion due to casing separation that allowed the Dakota Formation producing fresh water to enter the well bore. Following a re-cementing of the casing, the limestone reservoir was treated to attempt to dehydrate the clays that were causing clogging of the perforations.  The reservoir at this location only may have been adversely impacted by the fresh water. In May 2010, the #2 Double H well in Kansas reached a total depth of 5,460 feet.  The #2 Double H is a direct offset to the #24-1 Double H discovery well.  The #2 Double H Well encountered oil shows in several formations down-hole including the targeted Morrow sand and Mississippian. Our engineering team is now assessing the results and will report on their findings and recommendations for the next step in the development program.
 
In February 2010, we drilled the Shelor 23-2 Well at the Rooney Project, which was drilled to a depth of 5,400 feet.  The well encountered a fault that cut off the reservoir at this easterly location and, although geological information was gained, did not result in any reservoir being identified.  The Shelor 23-2 Well was plugged and abandoned.
 
Having completed the #24-1 Double H Oil Well and drilled the #2 Double H Well and the Shelor 23-2 Well, we plan to further evaluate the Rooney Prospect as to its future potential for commercial oil for the fiscal year 2010. At this time, we have no plans for future development at Rooney and are considering sale options for our interests in the leases.
 
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On August 25, 2009, we entered into a binding Letter of Intent with S&W to participate in the drilling for oil in the Colby Prospect located in Thomas County, Kansas.  The 500 acre block has a well defined 3D seismic anomaly that includes seven potential zones to be tested.  We agreed to pay S&W cash in an amount to be determined for dry-hole cased drilling costs as well as 25% of all further going forward costs such as completion and related infrastructure costs.  If a successful commercial well is established, S&W will assign 25% of the working interest and 81.5% net revenue interest in the Prospect to us.  On October 20, 2009, we began drilling operations at the #1 Keck Well, and on November 4, 2009, drilling operations at this well ended.  While the well successfully encountered oil and gas in the target horizons, there were no adequate reservoirs in order to complete the well as a commercial producer.  Management believes that Colby remains a viable prospect, and further work and analysis will be required in order to fully develop the Colby lease.
 
On September 8, 2009, we entered into a Participation Agreement with Archer to participate in the drilling for natural gas on the Wurster Gas Project, a prospect located in Sacramento County, California, 20 miles south of the city of Sacramento.  The Wurster Prospect target lies due east of the Victory Gas Project in which we also have a 25% working interest.  This project targets Winters sandstones which have, in the Sacramento Valley, accounted for over 400 BCF of gas production to-date along the Upper Cretaceous Winters “Eastside Stratigraphic Trend.”  Pursuant to the Participation Agreement, we have paid Archer $25,000 for costs in connection with the acquisition and operation of the prospect up to the drilling of an initial test well in exchange for a 25% working interest in the prospect.  Further, we are responsible for and have paid $125,000 for dry hole costs.  We are also responsible for 25% of all expenditures in connection with the development and operation of the prospect for drilling.  We may elect not to participate in additional expenditures in connection with the prospect at which time we will forfeit any interests we have in the prospect.  On October 8, 2009, we began drilling operations at the Wurster Gas Prospect – Archer-Tsakopoulos #2 well, which was planned as a 7,800 foot test for gas indicated by 3D seismic tests.  We increased our working interest in the Archer-Tsakopoulos #2 well up to 36% by purchasing an additional 11% through the payment of a pro-rata share for the seismic reprocessing and drilling costs in the amount of $66,000.  On November 4, 2009, drilling at this well ended.  While the well successfully encountered oil and gas in the target horizons, there were no adequate reservoirs in order to complete the well as a commercial producer.
 
On April 21, 2010, we entered into an operating agreement with Bay Petroleum Corp. (“Bay”) to participate in the drilling for oil in northern Oklahoma (the “Prospect”).  Pursuant to operating agreement, we agreed to pay to Bay $52,125 for all costs in connection with the acquisition and operation of the Prospect up to the drilling of an initial test well in exchange for a 25% working interest and 80% net revenue interest in the Prospect. We are also responsible for 25% of all expenditures in connection with the development and operation of the Prospect for drilling. On June 1, 2010, we announced that the No. 1 well had been put into production.  The current daily rates are at the 21 barrels per day level, with water in the 400 barrel range or approximately 20% oil cut.  Dewatering is expected to increase the cut and barrels per day.  A water disposal well has been permitted and we are disposing water to the well.  On June 5, 2010 drilling commenced on the No. 2 well and on June 14, 2010, we announced that we had begun work on completion of the well.  On June 23, 2010, we announced that drilling had commenced on the No. 3 well.  On that date we also announced the acquisition of 3 additional blocks increasing our overall working interest participation up to 7 lease blocks currently.  The No. 2 and 3 wells are currently not producing commercial quantities of hydrocarbons.  On September 21, 2010, we announced that drilling commenced on the NOJ26 well at the Prospect.  On September 27, 2010, the well reached a depth of 3,455 feet and completion of the well began.  The NOJ26 well is being completed and has been fracture stimulated in the lower 40 foot shale zone. The upper 40 foot Mississippian zone is oil pay behind pipe and will be eventually completed and co-mingled with the shale production. Site facilities include a pumpjack, tanks and separator. We are connected to a gas line for future gas production at yet rates unknown.  We believe the Prospect will involve the drilling of at least one well per month with continued drilling through 2011, which represents an investment of approximately $1.4 million.
 
Critical Accounting Policies
 
The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”) requires management of our Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
 
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The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP.  We believe certain critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.  A description of our critical accounting policies is set forth in our Annual Report on Form 10-K for the year ended December 31, 2009.  As of, and for the nine months ended September 30, 2010, there have been no material changes or updates to our critical accounting policies.  
 
Results of Operations
 
The following discussion of the financial condition, results of operations, cash flows, and changes in our financial position should be read in conjunction with our audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
 
The financial statements mentioned above have been prepared in conformity with U.S. GAAP and are stated in United States dollars.
 
Comparison of nine month periods ended September 30, 2010 and September 30, 2009
 
For the nine month periods ended September 30, 2010 and September 30, 2009, we incurred a comprehensive loss of $2,074,123 and $1,199,774, respectively.  The increase was largely attributed to an increase in interest expense from $84,784 for the nine month period ended September 30, 2009 to $634,076 for the nine month period ended September 30, 2010.
 
General and administration expenses for the nine month period ended September 30, 2010 amounted to $306,319 compared to $282,225 in the same period of 2009.  Executive compensation for the nine month period ended September 30, 2010 was $364,000 compared to $135,749, in the same period of 2009.
 
We had no foreign currency gain or loss during the nine month period ended September 30, 2010 compared to a gain of $20,221 in the same period of 2009.
 
Comparison of three month periods ended September 30, 2010 and September 30, 2009
 
For the three month periods ended September 30, 2010 and September 30, 2009, we incurred a comprehensive loss of $1,004,774 and $705,599, respectively.  The increase was largely attributed to an increase in interest expense from $80,949 for the three month period ended September 30, 2009 to $179,218 for the three month period ended September 30, 2010.
 
General and administration expenses for the three month period ended September 30, 2010 amounted to $106,141 compared to $81,314 in the same period of 2009.  Executive compensation for the three month period ended September 30, 2010 was $79,000 compared to $63,000, in the same period of 2009.
 
We had no foreign currency gain or loss during the three month period ended September 30, 2010 compared to a foreign currency gain of $16,497 during the same period of 2009.
 
Period from inception, January 24, 1996 to September 30, 2010
 
We have an accumulated deficit during the development stage of $7,350,181.
 
As a development stage company, we currently have limited operations, principally directed at potential acquisition targets and revenue-generating opportunities.
 
19

 
Liquidity and Capital Resources
 
As of September 30, 2010, we had cash of $3,307 and working capital deficiency of $2,428,367.  During the nine month period ended September 30, 2010, we funded our operations from revenue received and proceeds of private sales of equity and convertible notes and the exercise of warrants.  Our current cash requirements are significant due to planned exploration and development of current projects. We anticipate drilling 11 wells in Kansas and Oklahoma in 2010 which will cost approximately $2,100,000 and which will include several horizontal wells in Oklahoma and 4 vertical wells, as well as 2 wells in Kansas.  Additionally, we have other obligations to drill other properties and we expect to acquire rights in additional projects.  Accordingly, we expect to continue to primarily use debt and equity financing to fund operations for the next twelve months, as we look to expand our asset base and fund exploration and development of our properties. Changes in our operating plans, increased expenses, acquisitions, or other events may cause us to seek even greater equity or debt financing in the future.
 
For the nine month period ended September 30, 2010, we used net cash of $592,484 in operations.  Net cash used in operating activities increased from $388,247 in the nine month period ended September 30, 2009.
 
We raised $1,539,459 during the nine month period ended September 30, 2010 from the issuance of common stock, and convertible notes and the exercise of warrants.
 
On May 17, 2010, the Company issued a Convertible Debenture to Maxum Overseas Fund, a foreign institutional investor (“Maxum”) in the principal amount of $1,500,000.  The Debenture provides that Maxum, at any time, and the Company, on the maturity date, may convert any remaining outstanding principal balance and accrued interest under the Debenture into shares of common stock of the Company.  The Company may also convert any remaining outstanding principal balance and accrued interest into common stock of the Company if the 5-day trailing volume weighted average price of the Company’s common stock is at least $1.50 per share.  On November 13, 2010, the Company entered into a Second Amendment to Convertible Debenture (the “Debenture Amendment”) with Maxum whereby the parties agreed to reduce the conversion price applicable to such conversions from $0.90 per share to $0.25 per share (subject to adjustment as provided in the Debenture).

On August 13, 2009 and September 15, 2009, the Company issued certain Secured Convertible Promissory Notes to an accredited investor (the “Holder”) (the “First Note” and the “Second Note”, and together, the “Notes”) each in the principal amount of $500,000.  The Notes provide that the Holder at any time, or the Company on the maturity date, may convert any remaining outstanding principal balance and accrued interest under the Notes into shares of common stock of the Company based on a per share conversion price of the lower of (i) $0.35 (the “Initial Conversion Price”), or (ii) a twenty five percent (25%) discount to the average closing trading price of a share of the Company’s common stock during the five (5) trading days prior to the conversion date.  On November 13, 2010, the Company entered into an Amendment to Promissory Notes (the “Notes Amendment”) to amend the Notes to extend the repayment date of the First Note to August 13, 2011 and the repayment date of the Second Note to September 15, 2011.  Pursuant to the terms of the Notes Amendment, the Company and the Holder agreed to reduce the Initial Conversion Price from $0.35 per share to $0.25 per share (subject to adjustment as provided in the Notes).

The Debenture Amendment and the Notes Amendment are attached to this Quarterly Report on Form 10-Q as Exhibits 10.1 and 10.2.

Our management believes that we will be able to generate sufficient revenue or raise sufficient amounts of working capital through debt or equity offerings, as may be required to meet our short-term and long-term obligations.  However, there are no assurances that we will be able to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed.

Off-Balance Sheet Arrangements
 
There are no off-balance sheet arrangements.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable.
 
20

 
Item 4. Controls and Procedures.
 
Our management with the participation and under the supervision of our Principal Executive Officer and Principal Financial Officer reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rule 13a-15(e) or 15d-15(e)) of the Exchange Act Rule 13a-15 as of the end of the period covered by this report.  Based upon their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are effective and sufficient to ensure that we record, process, summarize, and report information required to be disclosed in the reports we filed under the Exchange Act within the time periods specified in the Securities and Exchange Commission’s rules and regulations, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
There were no changes in our internal controls over financial reporting that occurred during the quarterly period ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
21

 
PART IIOTHER INFORMATION
 
Item 1. Legal Proceedings.
 
None.
 
Item 1A. Risk Factors.
 
None.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
As of November 13, 2010, the balance due on the Debenture issued May 17, 2010 was $1,334,783.  Subsequent to the Debenture Amendment discussed above, the Debenture provides that Maxum, at any time, and the Company, on the maturity date, may convert any remaining outstanding principal balance and accrued interest under the Debenture into shares of common stock of the Company.  The Company may also convert any remaining outstanding principal balance and accrued interest into common stock of the Company if the 5-day trailing volume weighted average price of the Company’s common stock is at least $1.50 per share.  The conversion price applicable to such conversions is $0.25 per share (subject to adjustment as provided in the Debenture).

As of November 13, 2010, the aggregate principal balance of the Notes issued August 13, 2009 and September 15, 2009 was an aggregate of $633,306.  Subsequent to the Notes Amendment discussed above, the Notes provide that the Holder at any time, or the Company on the maturity date, may convert any remaining outstanding principal balance and accrued interest under the Notes into shares of common stock of the Company based on a per share conversion price of the lower of (i) $0.25, or (ii) a twenty five percent (25%) discount to the average closing trading price of a share of the Company’s common stock during the five (5) trading days prior to the conversion date.

The issuance of the Debenture and Notes was conducted by the Company and was issued in reliance upon Rule 506 of Regulation D and/or Regulation S of the Securities Act of 1933, as amended, and comparable exemptions for sales to “accredited” investors under state securities laws.

Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4. Reserved.
 
Not applicable.
 
Item 5. Other Information.
 
None.
 
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Item 6. Exhibits.
 

Exhibit Number
 
Name
3.1(1)
 
Amended and Restated Articles of Incorporation
     
3.2(1)
 
Bylaws
     
10.1
 
Second Amendment to Convertible Debenture
     
10.2
 
Amendment to Promissory Notes
 
     
31.1
 
Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)
     
31.2
 
Rule 13a-14(d)/15d-14(d) Certification (Principal Financial Officer)
     
32
 
Section 1350 Certifications

Footnotes to Exhibits Index
(1)           Incorporated by reference to Form 10-SB12G dated June 19, 1997.
 
23

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
AMERICAN PETRO-HUNTER INC.
 
 
     
Date: January 28, 2011
By:
/s/ Robert B  McIntosh
   
Robert B, McIntosh, President and Chief Executive Officer
(Principal Executive Officer)
     
Date: January 28, 2011
By:
/s/ John J. Lennon
   
John J. Lennon, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
 
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