Spotlight Innovation 10-Q 2011 Q1 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Mark One

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

For the quarterly period ended March 31, 2011

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

For the transition period from ______ to _______

Commission File No. 333-141060

American Exploration Corporation

(Name of small business issuer in its charter)

Nevada	98-0518266
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

520 5th Avenue, Suite 2600

Calgary, Alberta

Canada T2P 3R7

(Address of principal executive offices)

(403) 233-8484

(Issuer’s telephone number)    

Securities registered pursuant to Section 12(b) of the Act:	Name of each exchange on which registered:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001
(Title of Class)

Indicate by checkmark whether the issuer: (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 o

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 (Section 229.405 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 o  No o

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

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

Applicable Only to Issuer Involved in Bankruptcy Proceedings During the Preceding Five Years.  N/A

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

Applicable Only to Corporate Registrants

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

Class	Outstanding as of May 16, 2011
Common Stock, $0.001	60,273,333

AMERICAN EXPLORATION CORPORATION

Form 10-Q

Part 1.	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements		4
	Balance Sheets (Unaudited)		4
	Statements of Operations (Unaudited)		5
	Statement of Changes in Stockholders’ Equity (Unaudited)		6
	Statements of Cash Flows (Unaudited)		8
	Notes to Financial Statements (Unaudited)		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		27
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings		27
Item 1A.	Risk Factors		27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3.	Defaults Upon Senior Securities		28
Item 4.	Removed and Reserved		28
Item 5.	Other Information		28
Item 6.	Exhibits		28

2

FORWARD LOOKING STATEMENTS

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

3

 AMERICAN EXPLORATION CORPORATION

 (An Exploration Stage Company)

BALANCE SHEETS

 (Unaudited)

	March 31, 2011			December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	11,807		$	10,733
Total Current Assets		11,807			10,733
Oil and gas properties – unevaluated, not subject to amortization		3,771,001			3,771,001
Website, net of accumulated amortization of $7,818 and $6,976, respectively		2,182			3,024
Total Assets	$	3,784,990		$	3,784,758
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	8,612		$	16,350
Accounts payable – related parties		103,462			44,110
Short-term note payable		80,000			50,000
Short-term notes payable – related parties		147,809			147,809
Convertible notes – related party		95,227			95,227
Total Current Liabilities		435,110			353,676
Commitments and contingencies		-			-
Stockholders’ Equity
Common stock, $0.001 par value, 2,100,000,000 shares authorized:
60,273,333 shares issued and outstanding, respectively		60,273			60,273
Additional paid-in capital		6,063,076			5,978,955
Accumulated deficit during exploration stage		(2,773,469	)		(2,608,146	)
Total Stockholders’ Equity		3,349,880			3,431,082
Total Liabilities and Stockholders’ Equity	$	3,784,990		$	3,784,758

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

4

AMERICAN EXPLORATION CORPORATION

(An Exploration Stage Company)

STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2011 and 2010

and For the Period from Inception (May 11, 2006) to March 31, 2011

	For the Three Months Ended March 31,
	2011			2010			Inception (May 11, 2006) to March 31, 2011
Revenue	$	-		$	-		$	-
Operating Expenses
General and administrative		158,379			206,476			2,853,393
Depreciation and amortization		842			842			9,095
Total Operating Expenses		159,221			207,318			2,862,488
Loss from operations		(159,221	)		(207,318	)		(2,862,488	)
Other income (expense)
Interest expense		(6,102	)		(3,445	)		(83,260	)
Loss on sale of assets		-			-			(1,161	)
Other income		-			75,000			173,800
Total other expense		(6,102	)		71,555			89,019
Net loss	$	(165,323	)	$	(135,763	)	$	(2,773,469	)
Net loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)
Weighted average common shares - basic and diluted		60,273,333			59,900,000

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

5

AMERICAN EXPLORATION CORPORATION

(An Exploration Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Period from Inception (May 11, 2006) to March 31, 2011

(Unaudited)

										Deficit
										Accumulated
							Additional			During the			Total
	Common Stock						Paid-in			Exploration			Stockholders’
	Shares			Amount			Capital			Stage			Equity
Balance at inception on May 11, 2006		-		$	-		$	-		$	-		$	-
Initial capitalization, sale of
of common stock to directors on
May 11,2006 at $0.00005/share		94,500,000			94,500			(90,000	)		-			4,500
Private placement - September 30,
at $0.0024/share		41,475,000			41,475			57,275			-			98,750
Net loss		-			-			-			(9,055	)		(9,055	)
Balance, December 31, 2006		135,975,000			135,975			(32,725	)		(9,055	)		94,195
Net loss		-			-			-			(60,078	)		(60,078	)
Balance, December 31, 2007		135,975,000			135,975			(32,725	)		(69,133	)		34,117
Private placement- November 19,
2008 at $0.67/share		1,350,000			1,350			898,650			-			900,000
Private Placement - November 24,
2008 at $0.67/share		150,000			150			99,850			-			100,000
Net loss		-			-			-			(106,170	)		(106,170	)
Balance December 31, 2008		137,475,000			137,475			965,775			(175,303	)		927,947
Private placement - February 2009
at $0.667/share		487,500			488			324,512			-			325,000
Forgiven loan from director		-			-			5,000			-			5,000
Cancellation of shares		(83,100,000	)		(83,100	)		83,100			-			-
Shares issued for oil and  gas lease -
August 2009 at $0.66/share		4,037,500			4,037			2,660,713			-			2,664,750
Private placements – August 2009
at $0.50/share		660,000			660			329,340			-			330,000
Private placements – September 2009
at $0.75 and $1.00/share		158,333			158			124,842			-			125,000
Private placement - October 2009
at $1.00/share		55,000			55			54,945			-			55,000
Amortization of share-based compensation		-			-			968,511			-			968,511
Discount on convertible debt		-			-			60,945			-			60,945
Net loss		-			-			-			(1,896,158	)		(1,896,158	)
Balance, December 31, 2009		59,773,333		$	59,773		$	5,577,683		$	(2,071,461	)	$	3,565,995

6

AMERICAN EXPLORATION CORPORATION

(An Exploration Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Period from Inception (May 11, 2006) to March 31, 2011

(Unaudited)

(Continued)

							Deficit
							Accumulated
					Additional		During the			Total
	Common Stock				Paid-in		Exploration			Shareholders’
	Shares		Amount		Capital		Stage			Equity
Balance, December 31, 2009		59,773,333	$	59,773	$	5,577,683	$	(2,071,461	)	$	3,565,995
Private placement – February 2010
at $0.25 per share		300,000		300		74,700		-			75,000
Private placement – April 2010
at $0.25 per share		200,000		200		49,800		-			50,000
Amortization of share-based compensation		-		-		276,772		-			276,772
Net loss		-		-		-		(536,685	)		(536,685	)
Balance Decenber 31, 2010		60,273,333		60,273		5,978,955		(2,608,146	)		3,431,082
Amortization of share-based compensation		-		-		84,121		-			84,121
Net loss		-		-		-		(165,323	)		(165,323	)
Balance March 31, 2011		60,273,333	$	60,273	$	6,063,076	$	(2,773,469	)	$	3,349,880

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

7

AMERICAN EXPLORATION CORPORATION

(An Exploration Stage Company)

STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2011 and 2010

and For the Period from Inception (May 11, 2006) to March 31, 2011

	For the Three Months Ended March 31,						Inception (May 11, 2006) to
	2011			2010			March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(165,323	)	$	(135,763	)	$	(2,773,469	)
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation and amortization expense		842			842			9,095
Amortization of debt discount		-			-			60,945
Share-based compensation		84,121			69,193			1,329,404
Loss on sale of assets		-			-			1,161
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities		(7,918	)		(20,423	)		8,474
Accounts payable - related parties		59,352			3,474			103,462
Net cash used in operating activities		(28,926	)		(82,677	)		(1,260,928	)
CASH FLOWS FROM INVESTING ACTIVITIES
Website		-			-			(10,000	)
Acquisition of unproved oil and gas properties		-			-			(1,108,551	)
Net cash used in investing activities		-			-			(1,118,551	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants		-			75,000			2,063,250
Proceeds from notes payable		30,000			-			80,000
Proceeds from notes payable - related parties		-			-			152,809
Proceeds from issuance of convertible debt - related parties		-			-			95,227
Net cash provided by financing activities		30,000			75,000			2,391,286
(Decrease) increase in cash during the period		1,074			(7,677	)		11,807
Cash, beginning of the period		10,733			9,560			-
Cash, end of the period	$	11,807		$	1,883		$	11,807
Supplemental cash flow information:
Taxes paid	$	-		$	-		$	-
Interest paid	$	-		$	-		$	-
NON-CASH TRANSACTIONS
Common stock issued for oil and gas property	$	-		$	-		$	2,664,750
Cancellation of  loan from director	$	-		$	-		$	5,000
Cancellation of shares	$	-		$	-		$	83,100

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

8

AMERICAN EXPLORATION CORPORATION

(An Exploration Stage Company)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements of American Exploration Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q.  They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for a complete financial presentation. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements.  Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.

These financial statements should be read in conjunction with the audited financial statements and footnotes that are included as part of the Company’s Form 10-K for the year ended December 31, 2010.

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

Basis of Presentation

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

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.  Significant estimates include those regarding the recoverability of the Company’s unevaluated oil and gas properties and valuation of option and warrant transactions.

Reclassification

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

9

Loss per Share

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

For the three month periods ended March 31, 2011 and 2010, options to purchase 2,800,000 and 2,700,000 shares of common stock, and warrants to purchase 100,000 and 559,166 shares of common stock, respectively, were excluded from the diluted earnings per share calculation because their effect would have been anti-dilutive. For the three months ended March 31, 2011 and 2010, approximately 200,000 shares of common stock associated with the conversion feature in the convertible note entered into in January 2010 were also excluded.

Cash and Cash Equivalents

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

Concentrations of Risks - Cash Balances

The Company maintains its cash in institutions insured by the Canada Deposit Insurance Corporation (CDIC) and Federal Deposit Insurance Corporation (FDIC).  As of March 31, 2011, the FDIC insured all amounts in non-interest bearing accounts and the CDIC had insured limits of up to $100,000 per depositor.

Oil and Gas Properties, Full Cost Method

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

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

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

As of March 31, 2011, the Company had no proved properties and, based upon the current status of the exploratory well in progress at March 31, 2011 on the Company’s properties, no impairment of unevaluated oil and gas properties was indicated.

10

Foreign exchange and currency translation

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

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for stock and stock options based on the grant date fair value of the awards under FASB ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). The Company determines the fair value of stock option grants using the Black-Scholes option pricing model. The Company determines the fair value of shares of nonvested stock (also commonly referred to as restricted stock) based on the last quoted price of our stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates, if historical forfeiture rates are available. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, as defined in ASC 718, if any, are recognized as an addition to paid-in capital.

Recent Accounting Pronouncements

There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company’s operations, financial position or cash flows.

NOTE 2. GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses for the period from inception to March 31, 2011 of $2,773,469, has negative working capital at March 31, 2011 and is currently in default of certain outstanding debt obligations. The Company intends to fund initial operations through equity financing or debt arrangements and current efforts are further described in Note 3 and Note 5.

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

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

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

• Management has changed the focus of the Company’s operations to oil and gas exploration and development from the provision of engineering services.

There can be no assurances, however, that management’s expectations of future revenues will be realized.

11

Mainland Resources, Inc. Merger Agreement

In 2010, our Board of Directors authorized and approved the execution of a definitive merger agreement and plan of merger (the “Merger Agreement”) dated March 22, 2010 (the “Execution Date”) with Mainland Resources, Inc., a Nevada corporation (“Mainland Resources”). The Merger Agreement provides for a stock-for-stock merger to be effected under the laws of the State of Nevada whereby it is contemplated that our shareholders will receive one share of common stock of Mainland Resources for every four shares of our common stock held of record. The share exchange ratio is subject to adjustment.  The Merger Agreement is subject to various conditions precedent including, but not limited to, approval by our shareholders and the shareholders of Mainland Resources of the Merger Agreement, and the number of Mainland Resources’ shareholders exercising dissenter rights available to them under Nevada law cannot exceed 5% of the total issued and outstanding shares of Mainland Resources common stock. The Merger Agreement, as amended, is subject to termination by either us or Mainland Resources if certain conditions specified in the Merger Agreement are not satisfied at or before August 31, 2011, or such later date as may be mutually agreed upon (the “Termination Date”).

If the merger is completed, Mainland Resources will be the surviving corporation, and will acquire all of the Company’s assets and property.

NOTE 3. STOCKHOLDERS’ EQUITY

Common Stock - Issued and Outstanding

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

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

In February 2009, the Company completed two private placements for 487,500 shares for cash of $325,000, or $0.67 per share.  Included with each share in these private placements was one-half non-transferable share purchase warrant, for a total of 243,750 warrants with a fair value on the date of grant of $48,716.  Each warrant had a term of 12 months and entitled the subscriber to purchase one additional share of the Company’s stock at an exercise price of $1.33 per share.  These warrants expired without exercise during 2010.

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

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

On August 17, 2009, a private placement closed for 400,000 shares at $0.50 per share or $200,000.  On August 31, 2009, a private placement closed for 260,000 shares at $0.50 per share or $130,000.  On September 21, 2009, a private placement closed for 133,333 shares at $0.75 per share, or $100,000.  On September 25, 2009, a private placement closed for 25,000 shares at $1.00 per share, or $25,000.  Included with each share in these private placements was one-half non-transferable share purchase warrant for a total of 409,166 warrants with an exercise term of 12 months and a fair value on the grant date of $356,761.  The warrants had exercise prices ranging from $0.50 to $1.50 and expired without exercise during 2010.

12

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

On February 24, 2010 a private placement closed for 300,000 shares at $0.25 per share or $75,000. The investor also received 150,000 warrants with an exercise price of $0.50 per share with a one year term.  These warrants had a grant date fair value of $20,495 and expired without exercise in February 2011.

On April 5, 2010 a private placement closed for 200,000 shares at $0.25 per share or $50,000. The investor also received 100,000 warrants with an exercise price of $0.50 per share with a one year term. These warrants had a grant date fair value of $17,403.

Stock Options

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

During September 2009, the following options were granted:

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

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

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

·   400,000 options to three consultants to the Company

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

Fair value of the options granted was $2,559,954, or $0.95 per share, and was calculated in accordance with the Black-Sholes valuation model based on the following assumptions: (a) risk free interest rate 3.47%, (b) expected volatility of 192.35% (c) expected life of 5.75 years, and (d) zero expected future dividends. The options qualify as ‘plain vanilla’ under the accounting literature and therefore, the expected life has been calculated pursuant to the provisions of Staff Accounting Bulletin No. 107. The Company recognized stock-based compensation expense of $69,193 related to these options during both of the three month periods ended March 31, 2011 and 2010.

On March 14, 2011, 100,000 options were granted to two directors of the Company.  The fair value of the options granted was $14,928, or $0.15 per share, and was calculated in accordance with the Black-Sholes valuation model based on the following assumptions: (a) risk free interest rate 3.36%, (b) expected volatility of 173.17% (c) expected life of 5 years, and (d) zero expected future dividends. The options qualify as ‘plain vanilla’ under the accounting literature and therefore, the expected life has been calculated pursuant to the provisions of Staff Accounting Bulletin No. 107.  These options vest immediately and $14,928 of share-based compensation was recognized during the three months ended March 31, 2011 related to this option grant.

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A summary of stock option activity and related information for quarter ended March 31, 2011is presented below:

	Options		Weighted-Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2011		2,700,000	$	0.80	$	-
Granted		100,000		0.13		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at March 31, 2011		2,800,000	$	0.78	$	1,000
Exercisable at March 31, 2011		966,667	$	0.78	$	333

The Company recognized total stock-based compensation expense of $84,121 related to these options during the quarter ended March 31, 2011.  As of March 31, 2011, total unrecognized stock-based compensation expense related to non-vested stock options was $1,522,251.  The unrecognized stock-based compensation is expected to be ratably amortized to expense over a weighted average period of 4.5 years. The weighted average remaining contractual term of the outstanding options and exercisable options at March 31, 2011 is 8.5 years.

Warrants

A summary of warrant activity and related information for the quarter ended March 31, 2011 is presented below:

	Warrants			Weighted-Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2011		250,000		$	0.50	$	-
Granted		-			-		-
Exercised		-			-		-
Expired		(150,000	)	$	0.50	$	-
Outstanding and exercisable at March 31, 2011		100,000		$	0.50	$	-
							-

As of March 31, 2011, the Company had 100,000 warrants outstanding with no intrinsic value that expired on April 5, 2011.  The Company has no other warrants outstanding.  

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Other Capital Transactions

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

NOTE 4. RELATED PARTY TRANSACTIONS

As of March 31, 2011, directors of the Company had outstanding loans to the Company of $87,809 that were used to cover operating expenses of the Company.  Average interest of 10% per annum has been accrued to the lenders and the loans are due upon demand.  All of these loans are unsecured and no interest has been paid to date.

A 5% unsecured convertible debenture, due January 13, 2010, was also issued by the Company to a related party on October 13, 2009 for CDN$100,000 (USD $95,227).  The unpaid principal amount can be converted into common stock at the price of $0.50 per share.  The convertible note was not redeemed or converted at the maturity date, is currently in default and is still accruing interest.

As of March 31, 2011, the Company owed $103,462 to related parties, which consisted of $76,000 of professional fees owed to entities owned by the Company’s CEO and CFO, and $25,129 of accrued interest on related party notes from above.

Mainland Resources Note Payable

In September 2010, the Company borrowed $60,000 from Mainland Resources to cover operating costs during the merger period.  The note bears interest at 12% and was due on December 31, 2010.  On December 23, 2010, we entered into an amendment to the Note (the “Amended Note”) with Mainland Resources to extend the due date to March 31, 2011.  On March 30, 2011, we entered into a further amendment with Mainland Resources to extend the due date to May 31st, 2011. On May 17, 2011, we entered into a further amendment with Mainland Resources to extend the due date to August 31st, 2011.

As of March 31, 2011 through the date of this filing, the Company had not received a demand notice from any of the related party lenders noted above for payment on these notes payable.

NOTE 5.  NOTES PAYABLE

In June 2010, the Company borrowed $50,000 pursuant to a note payable agreement with an unrelated third party. The note bears interest at 5% per annum, is unsecured and matures on June 2, 2011. Interest together with principal is due at the maturity date.

On February 4, 2011, the Company borrowed an additional $30,000 from the same party noted above pursuant to a note payable agreement.  The note bears interest at 5% per annum, is unsecured and is due on demand.  As of March 31, 2011 and through the date of this filing, the Company has not received a demand notice from this lender for payment of principal or interest on this note payable.

NOTE 6.  UNEVALUATED OIL AND GAS PROPERTIES

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

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The Option Agreement was amended a number of times to extend the Option Period and through August 2009, the Company made additional cash payments totaling $325,001 to the counterparty.

On August 19, 2009, the Company entered into a final amendment to the Option Agreement whereby the Company (i) agreed to issue 4,037,500 shares of its restricted common stock as satisfaction for the remaining balance due under the Option Agreement, and (ii) agreed to drill and complete a minimum of at least one well on the properties in the Haynesville geological zone no later than December 31, 2010. On November 2, 2010 an agreement was signed between Westrock and the Company which extends the deadline for drilling and completing a well in the Haynesville Formation one year, to December 31, 2011.

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

Mainland Resources, Inc. Joint Development Project

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

On March 25, 2010, Mainland Resources issued an authorization for expenditure (“AFE”) for the Burkley-Phillips No. 1 Well which contemplated drilling to a depth of 22,000 feet, or a depth sufficient to evaluate the Haynesville Shale formation. The total completed well cost was estimated at $13,550,000. In accordance with the terms and provisions of the Letter Agreement, we had thirty days to contribute our 20% share of the total completed well cost, or $2,710,000.

On April 27, 2010, we failed to fund our 20% of the estimated total well costs of the Burkley-Phillips No. 1 well on the Buena Vista prospect. As a result, we forfeited our right to a 29% working interest in the well and in the Buena Vista prospect in favor of Mainland Resources. We will continue to be entitled to receive a 20% working interest in the well and the prospect after completion (subject to compliance by us with all other terms and conditions of the Letter Agreement and the related Joint Operating Agreement).

In July 2010, the Burkley-Phillips No. 1 well commenced drilling on the Buena Vista prospect in Mississippi. The Burkley-Phillips No. 1 well reached the projected total depth of 22,000 feet on December 27, 2010. The Company is currently working with Mainland Resources to best design a completion program for the Burkley-Phillips No. 1 well, such that the well can be properly tested and evaluated within 2011. The well was drilled on the Westrock leases and completion during 2011 will satisfy all requirements related to the Option Agreement.

Avere Energy Inc. Farm-In Agreement

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

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Pursuant to the Amended Letter of Intent, Avere Energy was to enter into a definitive farm-in agreement with us whereby Avere Energy would farm-in on our interest in the Mississippi Project by paying 20% of the total well costs (which was 100% of our capital commitment under the Mainland Letter Agreement) to earn a 20% net interest in the Mississippi Project, which was 40.81% of our working interest (the “Earned Interest’). On January 27, 2010, pursuant to the Amended Letter of Intent, Avere Energy paid to us a $75,000 non-refundable deposit.

Effective on April 20, 2010, we received notice from Avere Energy they were terminating the Amended Letter of Intent. Avere Energy was unable to raise the required funds and obtain the approval of the TSX Venture Exchange to the definitive farm-in agreement. Therefore, in accordance with the notice of termination from Avere Energy to us, we did not enter into a definitive farm-in agreement with Avere Energy. An additional negotiated break fee of $75,000 was paid to us by Avere Energy on June 9, 2010. The fees paid by Avere Energy have been recognized as other income in the accompanying income statement.

NOTE 7.  INCOME TAXES

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

Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income.

At March 31, 2011 the Company’s deferred tax assets consist primarily of net operating loss carry forwards.  For March 31, 2011, the material reconciling items between the tax benefit computed at the statutory rate and the actual benefit recognized in the financial statement consisted of expenses related to share-based compensation and the change in the valuation allowance during the applicable year.  At March 31, 2011 the Company has recorded a 100% valuation allowance as management believes it is likely that any deferred tax assets will not be realized.

As of March 31, 2011, the Company has a net operating loss carry forward of approximately $1.38 million, which will expire between years 2026 and 2031. Due to the change in ownership provisions of the Tax Reform Act of 1986, our net operating loss carry forwards could be subject to annual limitations should a change in ownership occur.

NOTE 8. SUBSEQUENT EVENTS

On April 5, 2011, the Company’s remaining outstanding warrants of 100,000 expired.  The Company has no other warrants outstanding. 

On April 20, 2011, we granted 800,000 stock options to two of our directors for services rendered in their capacity as members of our Board of Directors and an additional 300,000 stock options to our CFO and legal counsel. These stock options vested immediately and are exercisable for a ten year period at $0.09 per share.  The 1,100,000 options  had an estimated fair value of $87,816 using the Black Scholes Valuation model.

On May 4, 2011 the Company entered into a note payable agreement with an unrelated party to borrow $35,000 at 5% per annum.  This note is due upon demand.

In accordance with ASC 855-10, the Company’s management reviewed all material events from March 31, 2011 through the issuance date of this report and there are no other material subsequent events to report.  

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

GENERAL

American Exploration Corporation was incorporated under the laws of the State of Nevada on May 11, 2006 under the name of Minhas Energy Consultants, Inc. Previously, we were engaged in the business of providing professional engineering consulting services to the oil and gas industry, including clients such as petroleum and natural gas companies, oilfield service companies, utilities and manufacturing companies with petroleum and/or natural gas interests and government agencies. After the effective date of March 14, 2007 of our registration statement filed with the Securities and Exchange Commission on March 5, 2007, we commenced trading on the Over-the-Counter Bulletin Board.

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

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

CURRENT BUSINESS OPERATIONS

We are an exploration stage company engaged in the acquisition, exploration and development of oil and gas properties in North America, primarily in the United States. Our primary focus has been the acquisition of mineral leases located in Mississippi previously owned by Westrock Land Corp, a private Texas corporation ("Westrock"). We identified a prospect with an over-thickened Bossier/Haynesville Shale gas reservoir situated below the properties covered by these leases.

Merger Agreement

Our Board of Directors has authorized and approved the execution of a definitive merger agreement and plan of merger (the “Merger Agreement”) dated March 22, 2010 (the “Execution Date”) with Mainland Resources, Inc., a Nevada corporation (“Mainland Resources”). The Merger Agreement provides for a stock-for-stock merger to be effected under the laws of the State of Nevada whereby it is contemplated that our shareholders will receive one share of common stock of Mainland Resources for every four shares of our common stock held of record. The specific share exchange ratio will be negotiated upon the completion of “fairness opinions” conducted by independent financial advisors and technical due diligence by both Mainland and American. As of the date of the Merger Agreement, there were 60,373,333 shares of our common stock issued and outstanding with the result that 15,068,333 shares of common stock of Mainland Resources are to be issued to our shareholders upon consummation and completion of the Merger Agreement, which shares may be increased based upon an increase in the number of our shares issued and outstanding subsequent to the Merger Agreement. In further accordance with the terms and provisions of the Merger Agreement, and based upon the closing market price of Mainland Resource’s common stock of $1.25 per share as reported on the OTC Bulletin Board on March 18, 2010, the total share consideration to be issued to our shareholders at the date of the Merger Agreement will be valued at $18,741,666. In the event the Merger Agreement is consummated and the merger is completed: (i) Mainland Resources will be the surviving corporation; (ii) Mainland Resources will be vested with all of our assets and property (as discussed below); and (iii) our shareholders will hold approximately twenty percent (20%) of the total issued and outstanding shares of common stock of Mainland Resources.

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

On May 5, 2010, we issued a press release announcing that we and Mainland Resources have each completed, to our satisfaction, respective due diligence investigations of the other party's business and affairs within the thirty day due diligence period contemplated by the Merger Agreement.  In addition, each party has received a fairness opinion (each, a "Fairness Opinion") of its own independent financial advisor to the effect that, as of the date of the Merger Agreement, the merger is fair from a financial point of view to holders of such party's shares (subject to the assumptions, qualifications and limitations relating to such opinion). Each Fairness Opinion sets forth the procedures followed, the assumptions made, qualifications and limitations on the review undertaken, and various other matters, and will be annexed to the joint proxy statement/ prospectus that will be included in a Registration Statement on Form S-4 that Mainland Resources will file with the Securities and Exchange Commission to register the securities of Mainland Resources to be issued in exchange for securities of American Exploration. If the merger is completed, Mainland Resources will be the surviving corporation, and will become vested with all of the Company’s assets and property. Each Fairness Opinion will not constitute a recommendation as to how any stockholder should vote on the merger or any matter relevant to the Merger Agreement.

Our Board of Directors has adopted a resolution approving the merger on the terms and subject to the conditions of the Merger Agreement, and recommending the merger to the stockholders of the Company. Furthermore, our Special Committee of the Board of Directors has also adopted a resolution approving the merger on the terms and subject to the conditions of the Merger Agreement, and recommending the merger to our stockholders.

Amending Agreements

Effective July 28, 2010, we entered into that certain letter agreement dated July 28, 2010 (the “Letter Agreement”) with Mainland Resources in regards to the Merger Agreement. . The Merger Agreement was subject to termination by either us or Mainland Resources if certain conditions specified in the Merger Agreement were not satisfied at or before September 30, 2010 or such later date as may be mutually agreed upon (the “Termination Date”). In accordance with the terms and provisions of the Letter Agreement, the Termination Date was extended to September 30, 2010.

Effective on September 7, 2010, we entered into an amending agreement (the “September 2010 Amending Agreement”) with Mainland Resources in regards to the Merger Agreement. In accordance with the terms and provisions of the September 2010 Amending Agreement, the Termination Date was extended to December 31, 2010.

Effective on December 23, 2010, we entered into an amending agreement (the “December 2010 Amending Agreement”) with Mainland Resources in regards to the Merger Agreement. In accordance with the terms and provisions of the December 2010 Amending Agreement, the Termination Date was extended to April 5, 2011.

Effective on March 14, 2011, we entered into an amending agreement (the “March 2011 Amending Agreement”) with Mainland Resources in regards to the Merger Agreement.  In accordance with the terms and provisions of the March 2011 Amending Agreement, the Termination Date was extended to May 31, 2011.

Effective on May 18, 2011, we entered into an amending agreement (the “May 2011 Amending Agreement”) with Mainland Resources in regards to the Merger Agreement.  In accordance with the terms and provisions of the May 2011 Amending Agreement, the Termination Date was extended to August 31, 2011.

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Westrock Option Agreement

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

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

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

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

On November 2, 2010, we executed a letter amendment to the Option Agreement with Westrock.  In the November 2, 2010 letter agreement, we agreed to drill and complete at least one well on the Leases in the Bossier/Haynesville geological zone no later than December 31, 2011.

Mainland Resources Letter Agreement

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

On March 25, 2010, Mainland Resources issued an authorization for expenditure (“AFE”) for the Burkley-Phillips No. 1 well, which contemplated drilling to a depth of 22,000 feet or a depth sufficient to evaluate the Bossier/Haynesville formations. The total completed well cost was estimated at $13,550,000. In accordance with the terms and provisions of the Letter Agreement, we had thirty days to contribute our 20% share of the total completed well cost or $2,710,000.

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On April 27, 2010, we failed to fund our 20% share of the estimated total well costs ($2,710,000) of the Burkley-Phillips No. 1 well within the thirty - day period provided for in the joint development agreement, (the 30 day period expired on April 23, 2010). As a result, we forfeited 29% (of the total 49% held by American) working interest in the Burkley-Phillips No. 1 well and the prospect in favor of Mainland Resources. We continued to be entitled to a 20% working interest in the Burkley-Phillips No.1 well and the prospect after completion (subject to compliance by us with all other terms and conditions of the Letter Agreement and the related joint operating agreement). If the Merger Agreement is approved and proceeds as proposed, our 20% working interest in the well and the prospect after completion will be owned by Mainland Resources, the resultant merged entity.

Mainland subsequently renegotiated the term on the leases originally held by American as well as those they had secured on the Buena Vista structure in Mississippi. The lease expiration dates have been extended beyond 2011.

Burkley-Phillips No. 1 Well

Management believed that over-thickened gas-charged Bossier/Haynesville Shale reservoir existed within the mineral leases acquired from Westrock in Mississippi.  A deep well drilled to a depth of 22,000 feet on these leases in 1981 confirmed the presence of highly over-pressured natural gas within an exceptionally thick Bossier/Haynesville section. The well was drilled to a depth of 22,000 feet, reaching total depth while still within the Bossier/Haynesville shale.

Extensive geo-technical work was completed pre-drill on data from the old well and geophysical data from the area, which supported the drilling of a new well. Two independent geophysical assessments of the property were completed and a gas in place assessment was completed by a leading petrophysical group who has experience with the Bossier/Haynesville shale gas interval. The results of these studies suggested that the leases of interest contain significant hydrocarbons. In that the Bossier/Haynesville is so thick in this locale, vertical wells may potentially be used to develop the property, reducing costs and many of the drilling challenges associated with horizontal wellbores. Drilling costs were estimated by an engineering company experienced in the project area, to a depth of 22,000 ft. Based on observed production rates within the Haynesville Formation of NW Louisiana and other Bossier Formation wells in East Texas, the highly over-pressured Bossier/Haynesville observed within the leases of interest may produce at very high rates.

As discussed above, Mainland Resources issued an Authority for Expenditure (AFE) for the Burkley-Phillips No. 1 well in early April, 2010 and engaged RAPAD Drilling & Well Service, Inc., of Jackson, Mississippi, as the drilling contractor. Drilling commenced on July 21, 2010 and the new well, located approximately 1,000 ft. away from the original well drilled on the property in 1981, was planned for a total depth of 22,000 ft. The Bossier/Haynesville interval was the primary target, although other secondary targets were identified as possible targets.

The Burkley-Phillips No. 1 well reached the projected total depth of 22,000 feet on December 27, 2010. The well was logged to a depth of approximately 21,040 ft., as the wireline logging tools were unable to safely descend past a perceived restriction in the wellbore at that depth. Production casing was set on the well shortly afterwards in early January 2011. It is the only well drilled in the Buena Vista area testing the Bossier/Haynesville shale since shale gas has emerged as a major natural gas resource.

As noted above, the AFE estimated the drilling cost to be approximately $8,650,000 and completion cost to be approximately $4,900,000 for a total completed well cost of approximately $13,550,000. The actual total drilling cost was approximately $10,200,000, and Mainland Resources anticipates that it will incur approximately $5,000,000 in additional post-drilling completion costs.

Large amounts of data were captured in the Burkley-Phillips No. 1 well which may be used to better quantify the nature of gas contained within the reservoir intervals. A 21-foot full core was cut within the Bossier/Haynesville interval (taken from approximately 20,415 feet to 20,436 feet measured depth) in early December, 2010. The core was transported to the Houston, Texas facilities of Core Laboratories NV's Core Lab Petroleum Services Division for comprehensive core analysis, with the view to determining potential volumes of gas in place within the matrix, porosity, permeability, gas quality, mineralogy and total organic content.

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In late January 2011, results were received by Mainland Resources from the first series of core analyses which it believes supports excellent gas potential within the Burkley-Phillips No. 1 well. The reservoir characteristics observed in the cored interval were found to be consistent with other gas producing shales when compared to an existing dataset of gas producing shales held by Core Lab. In addition, an extreme over-pressure was observed in the Burkley-Phillips No. 1 well, which is expected will lend itself to enhanced gas recovery.

The initial core analysis results also confirmed that mineralogy and total organic carbon percentage measured are within prospective ranges for the shale-dominated reservoir encountered. Porosity, permeability and water saturation values were also calculated. These values were plotted against other known gas producing shale reservoirs, and were used to "fingerprint" the reservoir, allowing Mainland Resources to draw direct comparisons with regards to shale gas potential.

It is believed that the laboratory measurement of gas filled porosity supports the multiple mud log gas shows within the Burkley-Phillips well observed while drilling the well.

The Company is currently working with Mainland Resources to best design a completion program for the Burkley-Phillips No. 1 well. The well was successfully drilled on the Westrock leases through the target shale gas zone, with plans to complete this well in 2011. Completion of the well during 2011 will satisfy all requirements related to the Westrock Agreement.

Furthermore, Mainland Resources has engaged a leading reservoir completions expert to design and supervise the fracture treatment ("frac") of the Burkley Phillips No. 1 well.

RESULTS OF OPERATION

STATEMENT OF INCOME AND EXPENSES	Three Month Periods Ended March 31,						For the Period from May 11, 2006 (inception) to
	2011			2010			March 31, 2011
Revenue	$	-		$	-		$	-
Operating Expenses
General and administrative expenses		158,379			206,476			2,853,393
Depreciation and amortization		842			842			9,095
Total Operating Expenses		159,221			207,318			2,862,488
Net Loss From Operations		(159,221	)		(207,318	)		(2,862,488	)
Other Income (Expense)
Loss on sale of assets		-			-			(1,161	)
Interest expense		(6,102	)		(3,445	)		(83,260	)
Other Income		-			75,000			173,800
Total Other Expense		(6,102	)		71,555			89,019
Net Loss	$	(165,323	)	$	(135,763	)	$	(2,773,469	)
BALANCE SHEET DATA
Total Assets	$	3,784,990
Total Liabilities	$	435,110
Total Stockholders’ Equity	$	3,349,880

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

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

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

Three Month Period Ended March 3, 2011 Compared to Three Month Period Ended March 31, 2010.

Our net loss for the three month period ended March 31, 2011 was $165,323 compared to a net loss of $135,763 during the three month period ended March 31, 2010, an increase of $29,560. We generated no revenue for the three month period ended March 31, 2011 and March 31, 2010, respectively.

During the three month period ended March 31, 2011, we incurred operating expenses of $159,221 compared to $207,318 incurred during the three month period ended March 31, 2010, a decrease of $48,097. The decrease in operating expenses was primarily attributable to the following items: (i) professional fees of $63,925 (2010: $77,615); and (ii) investor relations of $-0- (2010: $8,410).

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Operating expenses in 2011 decreased primarily due to less activity as compared to the period ended March 31, 2010. General and administrative expenses generally include corporate overhead, financial and administrative contracted services, marketing and consulting costs.

Of the $159,221 and $207,318 incurred as operating expenses during the three month periods ended March 31, 2011 and 2010, respectively, we incurred management fees of $53,250 to our officers and directors for both periods.

Interest expense of $6,102 (2010: $3,445) incurred during the three month period ended March 31, 2011 was recorded. During the 2010 period, we also recognized $75,000 as other income related to the non-refundable deposit paid by Avere Energy pursuant to the termination of their efforts to farm in on our Buena Vista prospect.

Our net loss during the three month period ended March 31, 2011 was $165,323 or $0.00 per share, compared to a net loss of $135,763 or $0.00 per share during the three month period ended March 31, 2010.

LIQUIDITY AND CAPITAL RESOURCES

Three Month Period Ended March 31, 2011

As of March 31, 2011, our current assets were $11,807 and our current liabilities were $435,110, which resulted in a working capital deficit of $423,303. As of March 31, 2011, current assets were comprised of $11,807 in cash and cash equivalents and current liabilities were comprised of: (i) $8,612 in accounts payable and accrued liabilities; (ii) $103,462 in accounts payable– related parties; (iii) 80,000 in short-term notes payable; (iv) $147,809 in short term notes payable – related parties; and (v) $95,277 in convertible notes payable – related party.

As of March 31, 2011, our total assets were $3,784,990 comprised of: (i) $11,807 in current assets; (ii) $2,182 in website, net of amortization; and (iii) $3,771,001 in unevaluated oil and gas properties. The slight decrease in total assets during the three month period ended March 31, 2011 from fiscal year ended December 31, 2010 was primarily due to the amortization of website cost.

As of March 31, 2011, our total liabilities were $435,110 comprised entirely of current liabilities. The increase in liabilities during the three month period ended March 31, 2011 from fiscal year ended December 31, 2010 was primarily due to the increase in short-term notes payable – related parties and accounts payable – related parties.

Stockholders’ equity decreased from $3,431,082 as of December 31, 2010 to $3,349,990 as of March 31, 2011 primarily due to the losses incurred during the period, which were partially offset by the amortization of stock-based compensation.

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. For the three month period ended March 31, 2011, net cash flows used in operating activities was $28,926 compared to $82,677 used during the three month period ended March 31, 2010. Net cash flows used in operating activities consisted primarily of a net loss of $165,323 (2010: $135,763), which was partially offset by $842 (2010: $842) in amortization  expense, $84,121 (2010: $69,193) in share-based compensation and $59,352 (2010: $3,474) in accounts payable – related parties. Net cash flows used in operating activities was reduced by $(7,918) (2010: ($20,423)) in accounts payable and accrued liabilities.

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Cash Flows from Investing Activities

For the three month periods ended March 31, 2011and March 31, 2010, net cash flows used in investing activities was $-0-.

Cash Flows from Financing Activities

We have financed our operations primarily from debt or the issuance of equity instruments. For the three month period ended March 31, 2011, net cash flows provided from financing activities was $30,000 compared to $75,000 for the three month period ended March 31, 2010. Cash flows from financing activities for the three month period ended March 31, 2011 consisted of $30,000 related to borrowings under a note payable. Cash flows from financing activities for the three month period ended March 31, 2010 consisted of $75,000 in proceeds from sale of common stock.

PLAN OF OPERATION AND FUNDING

A substantial portion of the fiscal years ended December 31, 2010 and 2009 was dedicated to financing and identification of a potential drilling partner and merger candidate. Financing partners were sought with the intent of conducting a private placement to raise funds to finalize the mineral lease acquisition in Mississippi and for the participation in the drilling of a well on those lands. As of the date of this Report, management fully anticipates that the Merger Agreement with Mainland Resources will be consummated and the merger transaction effected. In the event the Merger Agreement is not consummated, possible further advances from related parties and the sale of securities would be required to fund our operations over the next 12 months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through proceeds from the private placement of equity and debt instruments. In the event the Merger Agreement is not consummated and in connection with our future business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) additional drilling initiatives on our current Lease and future properties; and (ii) future property acquisitions. We would finance these expenses with further issuances of equity securities and debt issuances. We expect we would need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities could result in dilution to our current shareholders. Further, such securities may have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all.

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

MATERIAL COMMITMENTS

Promissory Notes

A future material commitment during fiscal year 2011 relates to those certain unsecured promissory notes entered into by us as follows (i) May 15, 2009 in the amount of $30,000 with a related party; (ii) May 29, 2009 in the amount of $7,809 with a related party; (iii) June 5, 2009 in the amount of $50,000 with one of our previous directors; (iv) June 2, 2010 in the amount of $50,000 with an unrelated third party. (v) February 4, 2011 for $30,000 with an unrelated third party; and (vi) May 4, 2011 in the amount of $35,000 with an unrelated third party.

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Effective on September 27, 2010, we entered into a promissory note in the principal amount of $60,000 (the “Note”) with Mainland Resources. The Note evidences monies advanced by Mainland Resources to us in order to assist us with various costs associated with the completion of the proposed merger between us and Mainland Resources pursuant to the terms and provisions of the Merger Agreement, as amended. The Note matured December 31, 2010, bears interest at the rate of 12% per annum and is unsecured.  Effective on December 23, 2010, we entered into amendment no. 1 to the Note (the “Amended Note”) with Mainland Resources to extend the due date to March 31, 2011.  We entered into a further amendment (the Amended Note no. 2) with Mainland Resources to extend the due date to May 31st, 2011. We entered into a further amendment (the Amended Note no. 3) with Mainland Resources to extend the due date to August 31st, 2011.  A note payable for $30,000 was entered into with an unrelated party on February 4, 2011, payable on demand with 5% interest per annum.

Debenture

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

PURCHASE OF SIGNIFICANT EQUIPMENT

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

OFF-BALANCE SHEET ARRANGEMENTS

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

GOING CONCERN

The independent auditors' report accompanying our December 31, 2010 and December 31, 2009 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse change in foreign currency and interest rates. 

Exchange Rate

Our reporting currency is United States Dollars (“USD”).  In the event we acquire any properties outside of the United States, the fluctuation of exchange rates may have positive or negative impacts on our results of operations.

Interest Rate

Interest rates in the United States are generally stable. Any potential future loans will relate mainly to acquisition of properties and will be mainly short-term. However, our debt may be likely to rise in connection with expansion and if interest rates were to rise at the same time, this could have a significant impact on our operating and financing activities. We have not entered into derivative contracts either to hedge existing risks for speculative purposes.

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ITEM IV. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of March 31, 2011 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  We identified a material weakness in our internal control over financial reporting primarily attributable to limited accounting and SEC reporting expertise within the Company. Due to our exploration stage, we have limited financial ability to remedy this staffing deficiency at this time; however, we will add additional accounting and SEC reporting expertise in the future as funds permit.

CHANGES IN INTERNAL CONTROLS

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

AUDIT COMMITTEE

Our Board of Directors has not established an audit committee. The respective role of an audit committee has been conducted by our Board of Directors. In the event the Merger Agreement is not consummated, we intend to establish an audit committee during fiscal year 2010. When established, the audit committee's primary function will be to provide advice with respect to our financial matters and to assist our Board of Directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our quarterly financial performance as well as its compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and our Board of Directors.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM IA. RISK FACTORS

No Report required

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

2010 PRIVATE PLACEMENTS

No report required.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

No report required.

ITEM 4. Removed and Reserved

ITEM 5. OTHER INFORMATION

No report required.

ITEM 6. EXHIBITS

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

EXHIBIT NO.	DOCUMENT
3.1	Articles of Incorporation (1)
3.1.2	Articles of Incorporation as amended.
3.1.3	Articles of Merger between Minhas Energy Consultants and American Energy Corp. (2)
3.1.4	Certificate of Change dated October 7, 2010 filed with the Nevada Secretary of State. (8)
3.2	Bylaws (1)
10.1	Option Agreement between American Energy Corporation  and Westrock Land Corporation dated October 2008. (3)
10.2	5% Convertible Debenture dated October 13, 2009 between American Exploration Corporation and DMS Ltd. (4)
10.3	Stock Option Plan of American Exploration Corporation dated September 14, 2009. (5)
10.4	Merger Agreement and Plan of Merger dated March __, 2010 between American Exploration Corporation and Mainland Resources Inc.
10.5	Promissory Note between American Exploration Corporation and Mainland Resources Inc. dated September 27, 2010 (9)
10.6	Amending Agreement between American Exploration Corporation and Mainland Resources Inc. dated September 7, 2010 (10)
10.7	Amending Agreement between American Exploration Corporation and Mainland Resources Inc. dated December 23, 2010. (11)
10.8	Amendment to Promissory Note between American Exploration Corporation and Mainland Resources Inc. dated December 23, 2010. (12)
10.9	Amending Agreement between American Exploration Corporation and Mainland Resources Inc. dated March 14, 2011. (13)
10.10	Amendment No. 2 to Promissory Note between American Exploration Corporation and Mainland Resources Inc. dated March 30, 2011.
16. 1	Letter from Moore & Associates dated August 11, 2009. (6)
16. 2	Letter from Seale & Beers, CPAs dated November 2, 2009. (7)
31.1	Certification  of  Chief  Executive   Officer  Pursuant  to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act.
31.2	Certification of Chief Financial Officer Pursuant  to  Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act.
32.1	Certification  of Chief  Executive  Officer  and Chief Financial Officer Under Section 1350 as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act.

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

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

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

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

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

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

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

(8) Incorporation by referenced from Current Report on Form 8-K filed with the Commission October 14, 2010

(2) Incorporation by referenced from Current Report on Form 8-K filed with the Commission October 6, 2010

(3) Incorporation by referenced from Current Report on Form 8-K filed with the Commission October 19, 2010

(4) Incorporation by referenced from Current Report on Form 8-K filed with the Commission January 3, 2011

(5) Incorporation by referenced from Current Report on Form 8-K filed with the Commission January 3, 2011

(6) Incorporation by referenced from Current Report on Form 8-K filed with the Commission March 18, 2011

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AMERICAN EXPLORATION CORPORATION

SIGNATURES

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

	AMERICAN EXPLORATION CORPORATION
Dated: May 20, 2011		/s/ STEVE HARDING
		Steve Harding, President/Chief
		Executive Officer
Dated: May 20,  2011	By:	/s/ BRIAN MANKO
		Brian Manko, Chief Financial Officer

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