Forward-Looking Information

This Form 10-Q quarterly report of Houston American Energy Corp. (the "Company") for the six months ended June 30, 2008, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement, where the Company expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.

The actual results or events may differ materially from those anticipated and as reflected in forward-looking statements included herein. Factors that may cause actual results or events to differ from those anticipated in the forward-looking statements included herein include the Risk Factors described in Item 1A of the Company's Form 10-K for the year ended December 31, 2007.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company believes the information contained in this Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and the Company will not update that information except as required by law in the normal course of its public disclosure practices.

Additionally, the following discussion regarding the Company's financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in Item 1 of Part 1 of this Form 10-Q, as well as the Risk Factors in Item 1A and the financial statements in the Company's Form 10-K for the fiscal year ended December 31, 2008.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company believes certain critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements. A description of the Company's critical accounting policies is set forth in the Company's Form 10-K for the year ended December 31, 2007. As of, and for the six months ended, June 30, 2008, there have been no material changes or updates to the Company's critical accounting policies other than the following updated information relating to Unevaluated Oil and Gas Properties:

-- Unevaluated Oil and Gas Properties. Unevaluated oil and gas properties not subject to amortization include the following at June 30, 2008:

                                            June 30, 2008
                       Acquisition costs   $        38,598
                       Evaluation costs          1,089,973
                       Retention costs              13,114
                       Total               $     1,141,685

The carrying value of unevaluated oil and gas prospects include $81,642 expended for properties in the South American country of Colombia at June 30, 2008. We are maintaining our interest in these properties and development has or is anticipated to commence within the next twelve months.

Current Year Developments

Drilling Activity

During the six months ended June 30, 2008, we drilled eight international wells in Colombia, as follows:

? Six wells were drilled on concessions in which we hold a 12.5% working interest; of which, at June 30, 2008, five were in production and one was a dry hole.

? One well was drilled on a concession in which we hold a 6.25% working interest and was a dry hole.

? One well was drilled on a concession in which we hold a 1.6% working interest and was in production on June 30, 2008. This well was sold as part of the Caracara transaction on June 17, 2008.

No domestic wells were drilled during the six months ended June 30, 2008. The well drilled on our Caddo Lake prospect during the fourth quarter of 2007 was waiting on completion at June 30, 2008.

At June 30, 2008, we planned to drill four domestic wells and ten additional international wells over the balance of 2008.

Sale of Caracara Assets

In June 2008, we, through Hupecol Caracara LLC as owner/operator under the Caracara Association Contract, sold all of our interest in the Caracara Association Contract and related assets. As a result of the sale of the Caracara assets, we received net proceeds, after deduction of fees and expenses of the transaction, of $11,546,510, realized a gain on the sale of $7,615,236 and eliminated from oil and gas properties costs subject to amortization associated with the Caracara assets totaling $3,977,907.

Pursuant to the terms of the sale of the Caracara assets, on the closing date of the sale, a portion of the purchase price was deposited in escrow to settle post-closing adjustments under the purchase and sale agreement. The funds deposited in escrow will be released to us, or to the purchaser, based on post-closing adjustments 12 months following closing. Our proportionate interest in the escrow deposit, totaling $1,673,511, has been recorded as Other Assets.

The net proceeds and the gain realized from the sale of the Caracara assets may be adjusted based on post-closing adjustments.

Colombian taxes attributable to the sale of the Caracara assets, totaling $4,394,575, were recorded and paid at the time of closing.

Production from the Caracara prospect accounted for $875,687 and $3,004,865 of our revenues during the quarter and six months ended June 30, 2008.

Lease operating expense from the Caracara prospect accounted for $210,926 and $444,073 of our lease operating expense during the quarter and six months ended June 30, 2008.

Leasehold Activity

During the six months ended June 30, 2008, we acquired, through our 1.594674% interest in Hupecol Caracara LLC, an interest in the La Cuerva Contract covering approximately 75 square miles in Colombia.

During the six months ended June 30, 2008, we acquired interests in two additional prospects in South Louisiana for which we advanced leasehold costs of approximately $7,770. We sold our interest in one of the prospects - the North Henry Bayou prospect - during the period, retaining a 4.5% carried interest in the prospect, for which we received $60,301 and sold our interest in the second prospect - the Home Run prospect - during the period for which we received $213,395.

Seismic Activity

During the six months ended June 30, 2008, our operator in Colombia acquired approximately 65 miles of additional seismic and geological data. The additional data relates primarily to prospects in which we hold a 12.5% working interest. Our share of the costs of such data acquisition was $264,845. The operator also acquired additional seismic data on the La Cuerva prospect. Our share of this cost was $44,855.

Executive Compensation - Restricted Stock, Stock Options and Bonus Payments

During the quarter and six months ended June 30, 2008, we recognized compensation expense, in addition to salaries, to our two executive officers consisting of (1) $400,320 attributable to grants of 55,600 shares of restricted stock originally approved in 2007 and approved by our stockholders and issued in June 2008, (2) payment of cash bonuses totaling $750,000, which bonuses were contingent on the completion of the sale of the Caracara assets and were paid in June 2008, and (3) $177,283 attributable to grants of stock options.

Results of Operations

Oil and Gas Revenues. Total oil and gas revenues increased 246.9% to $3,328,951 in the quarter ended June 30, 2008 when compared to the quarter ended June 30, 2007. For the first six months of 2008, oil and gas revenues increased 215.7%, to $6,266,085, when compared to the first six months of 2007.

The increase in oil and gas revenue for both the quarter and six months over 2007 is principally due to increased production resulting from the development of the Colombian fields and higher oil prices. We had interests in 44 producing wells in Colombia during the six months ended June 30, 2008, and seven producing wells in the U.S. during the 2008 six month period as compared to 26 producing wells in Colombia and 8 producing wells in the U.S. during the 2007 six month period.

As a result of the sale of our interest in the Caracara prospect, we sold our interest in 34 producing wells in Colombia and anticipate that our oil and gas revenues will decline in the third quarter of 2008 and until increases in production from other properties can offset the revenues from the Caracara prospect. Oil and gas revenues from the Caracara prospect totaled $875,687 and $3,004,865 during the quarter and the six months ended June 30, 2008, respectively.

The following table sets forth a comparison of hydrocarbon prices for the quarter and six month periods:

                                             Quarter Ended June 30,           Six Months Ended June 30,
Hydrocarbon prices:                           2008             2007            2008               2007

Oil - Average price per barrel              $     102.57      $   58.73      $      99.36       $      53.98
Gas - Average price per mcf                        10.54           8.44              9.49               8.20

The following table sets forth a comparison of oil and gas sales by region for the quarter and six month periods.

                    Quarter Ended June 30,          Six Months Ended June 30,
Sales:                2008            2007             2008             2007

Oil Colombia      $   3,197,123     $ 890,735     $    6,015,101     $ 1,854,655
    US                   47,208        29,924             93,474          61,797
    Total - Oil   $   3,244,331     $ 920,659     $    6,108,575     $ 1,916,452

Gas Colombia      $           -     $       -     $            -     $         -
    US                   84,620        39,003            157,510          68,633
    Total - Gas   $      84,620     $  39,003     $      157,510     $    68,633

Lease Operating Expenses. Lease operating expenses, excluding joint venture expenses relating to our Colombia n operations discussed below, increased 138.6% to $1,165,048 in the 2008 quarter from $488,246 in the 2007 quarter. For the six months ended June 30, 2008, lease operating expenses, excluding joint venture expenses, increased 128.2%, to $2,041,890, compared to the 2007 six month period.

The increase in lease operating expenses was attributable to the increase in the number of wells operated during the 2008 period and increased activities on prospects in which we hold a higher working interest (12.5%) during 2008 as compared to 2007.

                              Quarter Ended June 30,          Six Months Ended June 30,
Lease Operating Expenses:       2008            2007             2008              2007

Colombia                    $   1,121,158     $ 465,611     $     1,959,141      $ 849,655
U.S.                               43,890        22,635              82,749         45,158
Total                       $   1,165,048     $ 488,246     $     2,041,890      $ 894,813

As a result of the sale of our interest in the Caracara prospect, we anticipate that our lease operating expenses will decline although such anticipated decline is expected to be offset in part or in whole by our higher share of lease operating expenses on other prospects in which we hold a higher working interest.

Joint Venture Expenses. Our allocable share of joint venture expenses attributable to the Colombian Joint Venture totaled $54,340 during the 2008 quarter and $39,433 for the 2007 quarter. For the six months ended June 30, 2008, joint venture expenses for Colombia totaled $101,694 as compared to $79,054 for the six months ended June 30, 2007. The increase in joint venture expenses was attributable to an increase in drilling activity in concessions in which we own a higher working interest.

Depreciation and Depletion Expense. Depreciation and depletion expense was $424,102 and $394,978 for the quarters ended June 30, 2008 and 2007, respectively, and $765,903 and $666,756 for the six months ended June 30, 2008 and 2007, respectively. The increase for both the quarter and six months is due to increases in Colombian production and a 29% increase in the depletable cost pool.

General and Administrative Expenses. General and administrative expense increased by 223.6% to $1,686,390 during the quarter ended June 30, 2008 from $521,142 in the 2007 quarter. For the six months ended June 30, 2008, general and administrative expenses increased 129.5%, to $2,007,315, compared to the 2007 six month period. The increase in general and administrative expense was primarily attributable to increases in compensation expense relating to restricted stock grants ($400,320), cash bonuses payable on closing of the Caracara sale ($750,000) and stock option grants ($177,283).

Other Income. Other income consists of interest earned on cash balances and marketable securities.

Interest income decreased 64.5% from $187,234 during the quarter ended June 30, 2007 to $66,402 during the quarter ended June 30, 2008 and decreased 55.5% from $360,554 during the six months ended June 30, 2007 to $160,443 during the six months ended June 30, 2008. The decrease in interest income was attributable to reduced interest rates on short term cash investments.

The sale of our Caracara assets resulted in a gain of $7,615,236 during the quarter and six months ended June 30, 2008. The gain realized may be subject to adjustment based on post-closing adjustments.

Income Tax Expense. Income tax expense increased by 3107.8% to $4,480,907 during the 2008 quarter compared to the 2007 quarter. For the six months ended June 30, 2008, income tax expense increased 1789.4%, to $5,053,438, as compared to the 2007 period. The increase in income tax expense during the 2008 quarter and six month period was attributable to the sale of the Caracara assets and, to a lesser extent, the increase in revenue in Colombia. Income tax expense during the 2008 and 2007 periods was entirely attributable to operations in Colombia. The Company recorded no U.S. income tax liability in the 2008 or 2007 periods.

Financial Condition

Liquidity and Capital Resources. At June 30, 2008, we had a cash balance of $13,553,383 and working capital of $14,572,604 compared to a cash balance of $417,818 and working capital of $10,358,502 at December 31, 2007. The increase in working capital during the period was primarily attributable to the receipt of proceeds from the sale of the Caracara assets and, to a lesser extent, increased revenues from wells producing in Colombia.

Operations used cash during the 2008 period totaled $2,915,773 as compared to $785,048 of cash provided by operations during the 2007 period. The adverse change in operating cash flows was attributable to taxes arising from the sale of the Caracara assets ($4,394,575) and the payment of cash bonuses ($750,000) during the 2008 period.

Investing activities provided $15,676,338 during the 2008 period compared to $920,004 used during the 2007 period. The funds provided by in investing activities reflect the receipt of proceeds from the sale of the Caracara assets $9,872,959 and the Home Run and North Henry Bayou prospects for $273,696, as well as the sale of marketable securities $9,650,000 during the 2008 period and the sale of marketable securities $3,000,000 during the 2007 period. Funds used in investing activities consisted primarily of investments in oil and gas properties and assets of ($3,807,871) during the 2008 period and ($3,920,004) during the 2007 period.

Financing activities provided $375,000 from the exercise of outstanding warrants during the 2008 period. We had no financing activities during the 2007 period.

Capital and Exploration Expenditures and Commitments. Our principal capital and exploration expenditures relate to ongoing efforts to acquire, drill and complete prospects. We expect that future capital and exploration expenditures will be funded principally through funds generated from operations and funds on hand, including funds generated from the sale of our interest in the Caracara prospect.

During the six months of 2008, we invested approximately $4,081,567 for the acquisition and development of oil and gas properties, consisting of (1) drilling of eight wells in Colombia ($2,840,454), (2) seismic and geological costs in Colombia ($308,241), (3) delay rentals on U.S. properties ($33,458),
(4) leasehold costs on U.S. properties ($7,770) and Colombian properties ($565,394), and (5) capital expenditures on U.S. wells ($326,249).

At June 30, 2008, our only material contractual obligation requiring determinable future payments was a lease relating to the Company's executive offices which was unchanged when compared to the 2007 Form 10-K.

At June 30, 2008, our acquisition and drilling budget for the balance of 2008 totaled approximately $4,900,000, which consisted of the drilling of ten wells in Colombia, four wells in the United States, and seismic and infrastructure cost. Our acquisition and drilling budget has historically been subject to substantial fluctuation over the course of a year based upon successes and failures in drilling and completion of prospects and the identification of additional prospects during the course of a year.

Management anticipates that our current financial resources combined with expected operating cash flows will meet our anticipated objectives and business operations, including planned property acquisitions and drilling activities, for at least the next 12 months without the need for additional capital. Management continues to evaluate producing property acquisitions as well as a number of drilling prospects. It is possible, although not anticipated, that we may require and seek additional financing if additional drilling prospects are pursued beyond those presently under consideration.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party obligations at June 30, 2008.

Inflation

We believe that inflation has not had a significant impact on operations since inception.