##### Table of Contents



United States Securities And Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q/A
 (Amendment No. 1)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ________ to _________
 Commission File No. 1-31900
 AMERICAN OIL & GAS, INC.
  Nevada
    
    88-0451554(State or jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1050 17th Street, Suite 2400, Denver, CO
    
    80265(Address of principal executive offices)
    
    (Zip Code)
 (303) 991-0173
 þ o
  o o þ
 o þ




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##### Table of Contents



EXPLANATORY NOTE
       2




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##### 



AMERICAN OIL & GAS, INC.
FORM 10-Q/A
TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    4Consolidated Balance Sheets  September 30, 2006 (unaudited) and
December 31, 2005
    
    
    4Consolidated
Statements of Income  Three and Nine Months Ended September
30, 2006 and 2005 (unaudited)
    
    
    5Consolidated Statements of Cash Flows  Nine Months Ended September 30,
2006 and 2005 (unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Summary of Significant Accounting Policies
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    30Exhibit 10.1 Purchase and Sale Agreement dated March 31, 2006 by and between American Oil & Gas, Inc. and Enerplus Resources (USA) CorporationExhibit 31.1 Certification by Chief Executive OfficerExhibit 31.2 Certification by Chief Financial OfficerExhibit 32.1 Certification by Chief Executive OfficerExhibit 32.2 Certification by Chief Financial Officer
 3




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##### Table of Contents



PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICAN OIL & GAS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 September 30,2006
    
    
    December 31,(UNAUDITED)
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents (Note 1)
    
    $
    8,550,802
    
    
    $
    6,022,822Short-term investments (Note 5)
    
    
    10,962,000
    
    
    
    Trade receivables
    
    
    355,271
    
    
    
    1,481,543Receivable for sale of oil and gas properties
    
    
    2,484,362
    
    
    
    Inventory
    
    
    40,904
    
    
    
    40,904Prepaid expenses
    
    
    201,690
    
    
    
    156,475Total current assets
    
    
    22,595,029
    
    
    
    7,701,744PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $37,224,440 at 9/30/06 and $17,843,133 at 12/31/05)
    
    
    40,779,123
    
    
    
    26,547,922Other property and equipment
    
    
    211,937
    
    
    
    68,023Total property and equipment
    
    
    40,991,060
    
    
    
    26,615,945Less accumulated depreciation, depletion and amortization
    
    
    (2,396,401
    )
    
    
    (1,636,246
    )Net property and equipment
    
    
    38,594,659
    
    
    
    24,979,699OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset
    
    
    645,000
    
    
    
    780,000Drilling prepayments
    
    
    1,732,101
    
    
    
    643,485Other assets
    
    
    10,000
    
    
    
    $
    75,247,257
    
    
    $
    45,775,396LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    1,103,040
    
    
    $
    954,544Asset retirement obligations
    
    
    177,527
    
    
    
    Deferred income taxes
    
    
    3,183,240
    
    
    
    Preferred dividends payable
    
    
    207,122
    
    
    
    479,342Total current liabilities
    
    
    4,670,929
    
    
    
    1,433,886LONG TERM LIABILITIESAsset retirement obligations
    
    
    87,172
    
    
    
    117,011Deferred income taxes
    
    
    4,699,323
    
    
    
    1,893,581COMMITMENTS AND CONTINGENCIES (Note 9)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value, authorized 400,000 sharesIssued and outstanding  250,000 shares at 9/30/06 and 12/31/05.
Redemption value of $13,707,122 at 9/30/06; $13,979,342 at 12/31/05
    
    
    250
    
    
    
    250Common stock, $.001 par value, authorized 100,000,000 shares; issued
and outstanding  38,903,994 shares at 9/30/06 and 36,476,202 at
12/31/05
    
    
    38,904
    
    
    
    36,476Additional paid-in capital
    
    
    58,933,957
    
    
    
    43,225,408Deferred compensation
    
    
    (53,865
    )
    
    
    Retained earnings (accumulated deficit)
    
    
    1,700,699
    
    
    
    (931,216
    )Accumulated other comprehensive income
    
    
    5,169,888
    
    
    
    65,789,833
    
    
    
    42,330,918$
    75,247,257
    
    
    $
    45,775,396
  4




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AMERICAN OIL & GAS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUESOil and gas sales
    
    $
    216,347
    
    
    $
    1,529,288
    
    
    $
    2,046,232
    
    
    $
    3,455,057Service fee
    
    
    
    
    
    
    
    
    
    
    1,530,000
    
    
    
    216,347
    
    
    
    1,529,288
    
    
    
    3,576,232
    
    
    
    3,455,057OPERATING EXPENSESLease operating
    
    
    56,300
    
    
    
    60,363
    
    
    
    222,093
    
    
    
    154,866General and administrative
    
    
    963,992
    
    
    
    504,469
    
    
    
    2,795,311
    
    
    
    1,636,478Depletion, depreciation and amortization
    
    
    187,715
    
    
    
    566,899
    
    
    
    896,871
    
    
    
    1,127,870Accretion of asset retirement obligation
    
    
    6,556
    
    
    
    22
    
    
    
    8,343
    
    
    
    2,109Impairment
    
    
    860,000
    
    
    
    
    
    
    
    860,000
    
    
    
    2,074,563
    
    
    
    1,131,753
    
    
    
    4,782,618
    
    
    
    2,921,323INCOME (LOSS) FROM OPERATIONS
    
    
    (1,858,216
    )
    
    
    397,535
    
    
    
    (1,206,386
    )
    
    
    533,734OTHER INCOMEGain on sale of oil and gas properties (Note 4)
    
    
    
    
    
    
    
    
    
    
    7,159,470
    
    
    
    Investment income
    
    
    122,954
    
    
    
    80,993
    
    
    
    293,481
    
    
    
    121,868122,954
    
    
    
    80,993
    
    
    
    7,452,951
    
    
    
    121,868INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (1,735,262
    )
    
    
    478,528
    
    
    
    6,246,565
    
    
    
    655,602Income tax expense (reduction)-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense (reduction)-deferred
    
    
    (473,587
    )
    
    
    
    
    
    
    2,806,870
    
    
    
    NET INCOME (LOSS)
    
    
    (1,261,675
    )
    
    
    478,528
    
    
    
    3,439,695
    
    
    
    655,602Less dividends on preferred stock
    
    
    (272,219
    )
    
    
    (207,123
    )
    
    
    (807,780
    )
    
    
    (207,123
    )NET INCOME (LOSS) TO COMMON
STOCKHOLDERS
    
    $
    (1,533,894
    )
    
    $
    271,405
    
    
    $
    2,631,915
    
    
    $
    448,479NET
INCOME (LOSS) PER COMMON SHARE - BASIC
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    0.07
    
    
    $
    0.01NET INCOME (LOSS) PER COMMON SHARE
- DILUTED
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    0.07
    
    
    $
    0.01Basic Weighted Ave. Common Shares Outstanding
    
    
    37,049,751
    
    
    
    35,788,702
    
    
    
    36,835,697
    
    
    
    33,390,689Diluted Weighted Ave. Common Shares Outstanding
    
    
    37,049,751
    
    
    
    36,541,452
    
    
    
    37,298,736
    
    
    
    34,307,183
  5




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AMERICAN OIL & GAS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 Nine months ended September 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    3,439,695
    
    
    $
    655,602Adjustments to reconcile to net cash provided by operating activities:Gain on sale of oil & gas properties
    
    
    (7,159,470
    )
    
    
    Service Fee in the form of a convertible note (Note 5)
    
    
    (1,530,000
    )
    
    
    Deferred income taxes
    
    
    2,806,870
    
    
    
    Depletion, depreciation and amortization
    
    
    896,871
    
    
    
    1,127,870Impairment provision
    
    
    860,000
    
    
    
    Share-based compensation
    
    
    1,280,152
    
    
    
    394,449Accretion of asset retirement obligation
    
    
    8,343
    
    
    
    2,109Changes in current assets and liabilities, net of effects of property
acquisitions and divestitures:Decrease (increase) in receivables
    
    
    1,126,272
    
    
    
    (463,162
    )Decrease (increase) in prepaid expenses
    
    
    (45,215
    )
    
    
    43,702Increase in accounts payable and accrued liabilities
    
    
    266,752
    
    
    
    3,045,671Net cash provided by operating activities
    
    
    1,950,270
    
    
    
    4,806,241CASH FLOWS FROM INVESTING ACTIVITIESCash proceeds from the sale of oil and gas properties
    
    
    14,359,662
    
    
    
    Cash paid to acquire, explore and develop oil and gas properties
    
    
    (12,667,666
    )
    
    
    (9,277,526
    )Cash paid for office equipment and office lease improvements
    
    
    (145,630
    )
    
    
    (1,371
    )Drilling prepayments
    
    
    (1,088,616
    )
    
    
    Cash paid for drilling bond deposit
    
    
    (10,000
    )
    
    
    Net cash (used) provided by investing activities
    
    
    447,750
    
    
    
    (9,278,897
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from sale of common stock
    
    
    
    
    
    
    13,500,000Proceeds from exercise of common stock warrants
    
    
    129,960
    
    
    
    152,600Cash paid for offering costs
    
    
    
    
    
    
    (584,167
    )Other
    
    
    
    
    
    
    (17,069
    )Net cash provided by financing activities
    
    
    129,960
    
    
    
    13,051,364NET INCREASE IN CASH
    
    
    2,527,980
    
    
    
    8,578,708CASH, BEGINNING OF PERIODS
    
    
    6,022,822
    
    
    
    5,251,889CASH, END OF PERIODS
    
    $
    8,550,802
    
    
    $
    13,830,597SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for income taxes
    
    $
    170,000
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIESProperty sales proceeds in the form of a receivable
    
    $
    2,484,362
    
    
    $
    Property sold in exchange for a convertible note (Note 5)
    
    $
    1,080,000
    
    
    $
    Finders fee received in the form of a convertible note (Note 5)
    
    $
    1,530,000
    
    
    $
    Conversion of notes receivable into equity securities (Note 5)
    
    $
    2,610,000
    
    
    $
    Unrealized gain on investment in equity securities net of
deferred taxes
    
    $
    5,169,888
    
    
    $
    Preferred dividends paid in shares of common stock
    
    $
    1,080,000
    
    
    $
    Warrants issued for placement fees
    
    $
    
    
    
    $
    575,544Other share-based compensation for services
    
    $
    1,280,152
    
    
    $
    394,449Share-based compensation for oil & gas interests
    
    $
    13,167,000
    
    
    $
    Stock issued for acquired company
    
    $
    
    
    
    $
    656,833
  6




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 Notes to Consolidated Financial Statements
 (UNAUDITED)
 September 30, 2006
   Nature of Business
   
 Note 1  Restatement and Significant Accounting Policies
 Restatement (dated as of April 11, 2007)
    7




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##### Table of Contents



Table 1:
    
    Summary of Our Consolidated Balance Sheet at September 30, 2006, as Previously Reported and as
As Restated
 As Previously
    
    
    Adjustments
    
    
    AsReported
    
    
    TCC related
    
    
    Other
    
    
    RestatedASSETSCurrent Assets
    
    $
    24,327,131
    
    
    $
    
    
    
    $
    (1,732,102
    )
    
    $
    22,595,029Property and Equipment at Cost:Oil and gas properties, evaluated
    
    
    3,469,239
    
    
    
    85,443
    
    
    
    1
    
    
    
    3,554,683Oil and gas properties, unevaluated
    
    
    34,004,849
    
    
    
    3,219,592
    
    
    
    (1
    )
    
    
    37,224,440Oil and gas properties, total cost
    
    
    37,474,088
    
    
    
    3,305,035
    
    
    
    
    
    
    
    40,779,123Other property and equipment
    
    
    211,936
    
    
    
    
    
    
    
    1
    
    
    
    211,937Total property and equipment
    
    
    37,686,024
    
    
    
    3,305,035
    
    
    
    1
    
    
    
    40,991,060Less accumulated depreciation, depletion,
and amortization
    
    
    (2,215,401
    )
    
    
    (181,000
    )
    
    
    
    
    
    
    (2,396,401
    )Net property and equipment
    
    
    35,470,623
    
    
    
    3,124,035
    
    
    
    1
    
    
    
    38,594,659Goodwill
    
    
    
    
    
    
    11,670,468
    
    
    
    
    
    
    
    11,670,468Other intangible assets
    
    
    
    
    
    
    645,000
    
    
    
    
    
    
    
    645,000Drilling prepayments and other
    
    
    10,000
    
    
    
    
    
    
    
    1,732,101
    
    
    
    1,742,101Total assets
    
    $
    59,807,754
    
    
    $
    15,439,503
    
    
    
    
    
    
    $
    75,247,257LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    4,670,929
    
    
    $
    
    
    
    $
    
    
    
    $
    4,670,929Asset retirement obligations
    
    
    87,172
    
    
    
    
    
    
    
    
    
    
    
    87,172Deferred income taxes
    
    
    3,261,742
    
    
    
    1,437,581
    
    
    
    
    
    
    
    4,699,323Stockholders Equity:Preferred stock
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Common stock
    
    
    38,904
    
    
    
    
    
    
    
    
    
    
    
    38,904Additional paid-in capital
    
    
    44,314,286
    
    
    
    14,619,671
    
    
    
    
    
    
    
    58,933,957Deferred compensation
    
    
    (53,865
    )
    
    
    
    
    
    
    
    
    
    
    (53,865
    )Retained earnings
    
    
    2,318,448
    
    
    
    (617,749
    )
    
    
    
    
    
    
    1,700,699Accumulated other comprehensive income
    
    
    5,169,888
    
    
    
    
    
    
    
    
    
    
    
    5,169,888Total equity
    
    
    51,787,911
    
    
    
    14,001,922
    
    
    
    
    
    
    
    65,789,833$
    59,807,754
    
    
    $
    15,439,503
    
    
    $
    
    
    
    $
    75,247,257
 Table 2:
    
    Summary of Our Statement of Operations for the nine-month period ended September 30, 2006, as
Previously Reported and as Restated
 As Previously
    
    
    Adjustments
    
    
    AsReported
    
    
    TCC related
    
    
    Other
    
    
    RestatedRevenue
    
    $
    3,576,232
    
    
    $
    
    
    
    $
    
    
    
    $
    3,576,232Lease operating expenses
    
    
    230,436
    
    
    
    
    
    
    
    (8,343
    )
    
    
    222,093General and administrative expenses
    
    
    2,795,311
    
    
    
    
    
    
    
    
    
    
    
    2,795,311Depreciation, depletion and amortization
    
    
    620,871
    
    
    
    276,000
    
    
    
    
    
    
    
    896,871Accretion of asset retirement obligation
    
    
    
    
    
    
    
    
    
    
    8,343
    
    
    
    8,343Impairment
    
    
    400,000
    
    
    
    460,000
    
    
    
    
    
    
    
    860,000Total operating expenses
    
    
    4,046,618
    
    
    
    736,000
    
    
    
    
    
    
    
    4,782,618(Loss) Income from operations
    
    
    (470,386
    )
    
    
    (736,000
    )
    
    
    
    
    
    
    (1,206,386
    )Gain on sale of oil and gas properties
    
    
    7,210,470
    
    
    
    (51,000
    )
    
    
    
    
    
    
    7,159,470Investment income
    
    
    293,481
    
    
    
    
    
    
    
    

    
    
    
    293,481Income before income taxes
    
    
    7,033,565
    
    
    
    (787,000
    )
    
    
    
    
    
    
    6,246,565Income tax provision
    
    
    3,105,870
    
    
    
    (299,000
    )
    
    
    
    
    
    
    2,806,870Net income
    
    
    3,927,695
    
    
    
    (488,000
    )
    
    
    
    
    
    
    3,439,695Less dividends on preferred stock
    
    
    (807,780
    )
    
    
    
    
    
    
    
    
    
    
    (807,780
    )Net income attributable to common stockholders
    
    $
    3,119,915
    
    
    $
    (488,000
    )
    
    $
    
    
    
    $
    2,631,915Net income per common share, basic and diluted
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    0.07
 8




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##### Table of Contents



USE
OF ESTIMATES
 CASH
EQUIVALENTS
 SHORT-TERM
INVESTMENTS 
 OIL AND GAS PROPERTIES 
  DEPLETION,
DEPRECIATION AND AMORTIZATION 
 CEILING
TEST
 9




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##### Table of Contents



REVENUE RECOGNITION AND GAS BALANCING
 IMPAIRMENT

 GOODWILL Goodwill and Other Intangible
Assets
  OTHER INTANGIBLE ASSETS
 SHARE-BASED COMPENSATION 
 INCOME
TAXES
 ASSET
RETIREMENT OBLIGATION
 10




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning asset retirement obligation
    
    $
    112,269
    
    
    $
    44,425
    
    
    $
    117,011
    
    
    $
    40,702Liabilities incurred
    
    
    111,073
    
    
    
    1,813
    
    
    
    112,287
    
    
    
    3,449Reduction in liability from sold
properties
    
    
    
    
    
    
    
    
    
    
    (7,745
    )
    
    
    Revisions of estimates
    
    
    34,801
    
    
    
    
    
    
    
    34,801Accretion
    
    
    6,556
    
    
    
    22
    
    
    
    8,345
    
    
    
    2,109Ending asset retirement obligation
    
    $
    264,699
    
    
    $
    46,260
    
    
    $
    264,699
    
    
    $
    46,260
 NET
EARNINGS (LOSS) PER SHARE
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income to common stockholders
    
    $
    (1,533,894
    )
    
    $
    271,405
    
    
    $
    2,631,915
    
    
    $
    448,479Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income adjusted for effects of dilution
    
    $
    (1,533,894
    )
    
    $
    271,405
    
    
    $
    2,631,915
    
    
    $
    488,479Basic Weighted Ave. Common Shares Outstanding
    
    
    37,049,751
    
    
    
    35,788,702
    
    
    
    36,835,697
    
    
    
    33,390,689Add dilutive effects of options and warrants
    
    
    
    
    
    
    752,750
    
    
    
    463,039
    
    
    
    916,494Add dilutive effects of convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted Weighted Ave. Common Shares Outstanding
    
    
    37,049,751
    
    
    
    36,541,452
    
    
    
    37,298,736
    
    
    
    34,307,183Net income per common share  basic
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    0.07
    
    
    $
    0.01Net income per common share  diluted
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    0.07
    
    
    $
    0.01
   11




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##### Table of Contents



Note 2  Stock Options, Warrants and Share-Based Compensation
   12




---



##### Table of Contents



Adoption of SFAS 123(R)
 Share-Based Payment
    September 30,
    
    September 30,2006
    
    2005Expected option life (in years)
    
    
    5  8
    
    
    
    5Expected volatility over option life
    
    
    33%   63
    %
    
    
    56%  71
    %Risk-free interest rate
    
    
    4.5%  5.2
    %
    
    
    3.09  4.12
    %Pre-vesting forfeiture rate
    
    
    0
    %
    
    
    0
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
  Pro-Forma Stock-Based Compensation Expense for the Quarterly and Nine-month Periods Ended September
30, 2005
 13




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##### Table of Contents



Three-
    
    
    Nine-Month
    
    
    MonthPeriod
    
    
    PeriodNet income to common stockholders, as reported
    
    $
    271,405
    
    
    $
    448,479Add stock-based compensation included in reported net income
    
    
    109,316
    
    
    
    285,133Deduct stock-based compensation determined under fair value
method
    
    
    (219,504
    )
    
    
    (585,333
    )Pro forma net income
    
    $
    161,217
    
    
    $
    148,279Net income per common share  basic and diluted:As reported
    
    $
    0.01
    
    
    $
    0.01Pro forma
    
    $
    0.00
    
    
    $
    0.00
 Stock Options as of September 30, 2006
   Number of
    
    Wgtd. Averageshares
    
    Exercise PriceOptions outstanding at December 31, 2005
    
    
    1,459,010
    
    
    $
    2.94Granted
    
    
    769,000
    
    
    $
    4.83Less exercised
    
    
    (32,010
    )
    
    $
    3.27Less canceled or forfeited
    
    
    
    
    
    
    Options outstanding at September 30, 2006
    
    
    2,196,000
    
    
    $
    3.60Options exercisable at September 30, 2006
    
    
    995,498
    
    
    $
    2.36
  14




---



##### Table of Contents



Weighted averageExercise price
    
    
    Number of shares
    
    
    remaining contractualper share
    
    
    Outstanding
    
    
    Exercisable
    
    
    life (years)$
    1.25
    
    
    
    403,000
    
    
    
    403,000
    
    
    
    3.42.38
    
    
    
    100,000
    
    
    
    87,500
    
    
    
    4.22.48
    
    
    
    90,000
    
    
    
    60,000
    
    
    
    4.33.66
    
    
    
    750,000
    
    
    
    249,998
    
    
    
    6.14.30
    
    
    
    9,000
    
    
    
    
    
    
    
    6.24.57
    
    
    
    9,000
    
    
    
    
    
    
    
    6.44.65
    
    
    
    250,000
    
    
    
    50,000
    
    
    
    9.34.66
    
    
    
    60,000
    
    
    
    20,000
    
    
    
    5.64.95
    
    
    
    250,000
    
    
    
    50,000
    
    
    
    10.04.98
    
    
    
    200,000
    
    
    
    50,000
    
    
    
    7.15.80
    
    
    
    75,000
    
    
    
    25,000
    
    
    
    5.92,196,000
    
    
    
    995,498Wgtd. Ave. remaining contractual
life
    
    6.3 years
    
    4.8 yearsAggregate intrinsic value
    
    $
    3,343,140
    
    
    $
    2,353,026
  Warrants as of September 30, 2006
  Common
    
    Exercise
    
    ExpirationIssue Date
    
    Shares
    
    Price
    
    DateJuly 22, 2005
    
    
    675,000
    
    
    $
    6.00
    
    
    January 21, 2007July 22, 2005
    
    
    281,250
    
    
    $
    6.00
    
    
    July 21, 2010September 15, 2003
    
    
    30,000
    
    
    $
    1.15
    
    
    September 15, 2008July 23, 2003 to September 24, 2003
    
    
    54,850
    
    
    $
    0.75
    
    
    July 24, 2008 toSeptember 24, 2008August 10, 2006
    
    
    100,000
    
    
    $
    4.90
    
    
    February 8, 20071,141,100
   Note 3  Income Taxes
 Accounting for Income
Taxes,
 15




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##### Table of Contents



Net Deferred Income TaxLiabilityCurrent
    
    
    Long-termBalance as of December 31, 2005
    
    $
    
    
    
    $
    1,893,581Add deferred income tax provision, nine months ended 9/30/06
    
    
    1,128
    
    
    
    2,805,742Deferred taxes on unrecognized gain reflected in other
comprehensive income (See Note 5.)
    
    
    3,182,112Balance as of September 30, 2006
    
    $
    3,183,240
    
    
    $
    4,699,323
 Note 4  Property and Equipment
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization
    
    $
    37,224,440Evaluated costs (including $243,438 in asset
retirement costs)
    
    
    3,554,68340,779,123Furniture and equipment
    
    
    211,93740,991,060Less accumulated depreciation, depletion and amortization
    
    
    (2,396,401
    )Property and equipment
    
    $
    38,594,659
 Significant Property Sales in 2006
   16




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##### Table of Contents



Big Sky
    
    
    Bear Creek
    
    
    Goliath
    
    
    TotalsContract sales price
    
    $
    11,500,000
    
    
    $
    1,080,000
    
    
    $
    6,165,520
    
    
    $
    18,745,520Effective date adjustments
    
    
    (821,496
    )
    
    
    0
    
    
    
    0
    
    
    
    (821,496
    )Adjusted sales price
    
    
    10,678,504
    
    
    
    1,080,000
    
    
    
    6,165,520
    
    
    
    17,924,024Allocated capitalized costs using the
relative fair market value method
required under full cost accounting
    
    
    (6,416,650
    )
    
    
    (648,443
    )
    
    
    (3,699,461
    )
    
    
    (10,764,554
    )Recognized gains on sales of oil and gas
properties
    
    $
    4,261,854
    
    
    $
    431,557
    
    
    $
    2,466,059
    
    
    $
    7,159,470
 Significant Property Acquisitions in 2006
  Oil and Gas Properties Unevaluated at September 30, 2006
  ProjectFetter Prospect in the Douglas Project area
    
    $
    22,200,000Non-Fetter leases in the Douglas Project area
    
    
    1,900,000Krejci
    
    
    1,700,000Goliath
    
    
    7,200,000Three new prospects acquired in 2006
    
    
    600,000Other unevaluated leases and rights
    
    
    400,000Total
    
    $
    34,000,000
  17




---



##### Table of Contents



Impairment of Oil and Gas Properties at September 30, 2006
  Note 5  Service Fee Revenue and Short-term Investments
    18




---



##### Table of Contents



Note 6
 Common Stock
  
    
    As described in Note 4, we issued 2,050,000 common shares to SunStone Oil & Gas LLC on
September 1, 2006 in exchange for SunStones working interests in the Fetter project. Our
stock closed at $6.38 per share that day, giving the issued stock a total value of
$13,079,000, of which $13,076,950 was Additional Paid-in Capital.
    
    Other Comprehensive Income of $3,139,568 was recorded in the third quarter to reflect
the $5,169,888 in unrealized gain on short-term investment at September 30, 2006 as
explained in Note 5.
    
    Additional Paid-in Capital increased by $291,019 for the periods share-based
compensation relating to stock options granted on or before September 30, 2006.
    
    Shares outstanding increased by 10,000 shares and additional paid-in capital increased
by $49,790 for the periods share-based compensation relating to stock granted in the third
quarter.
    
    In conjunction with our Series AA Convertible Preferred Stock, we are required to pay an
8% dividend on a semi-annual basis. We can make the dividend payments in cash or
equivalent shares of our common stock, at our discretion. During the quarter ended
September 30, 2006, we paid a semi-annual dividend payment of $540,000 by issuing 109,115
common shares, which shares were valued at $4.95 per share in accordance with methodology
prescribed in the Certificate of Designation of Rights, Preferences and Privileges of
Series AA Preferred Stock.
    
    Shares outstanding also increased by 10,670 shares and additional paid-in capital by
$34,880 upon the exercise of stock options.
  
    
    Other Comprehensive Income of $2,030,320 was recorded for the net unrealized gain on
short-term investment as of June 30, 2006 (See Note 5).
    
    Additional Paid-in Capital increased by $715,656 for the periods share-based
compensation relating to stock options granted on or before June 30, 2006.
    
    Shares outstanding increased by 48,745 shares and additional paid-in capital increased
by $193,045 in the second quarter relating to shares issued for services and the exercise
of stock options.
    
    In the first quarter of 2006, we issued 23,200 shares of common stock resulting from a
warrant exercise at $1.09 per share and received proceeds of $25,288.
    
    In the first quarter of 2006, common stock warrants were exercised for issuance of
11,600 shares of common stock at $0.75 per share. The terms of the warrants provided for
a cashless exercise and 1,916 shares were used to exercise the warrants at the market price
of $4.54 per share, resulting in issuance of a net amount of 9,684 shares of common stock.
    
    We issued a total of 27,000 shares of common stock to a consulting firm that is
assisting us with our investor relations program. The firm vests ownership of these shares
at the rate of 1,500 shares per month through June 2007. We have recorded $107,730 as
deferred compensation associated with these shares and we included $17,955 in investor
relations expense for the quarter ended March 31, 2006.
    
    We paid a total of 10,000 shares of restricted common stock to our Vice-President of
Land as an additional component of his initial employment. We valued these shares at $4.65
per share, which was the closing price of our common stock on the date of payment, and
charged $46,500 to compensation expense.
 19




---



##### Table of Contents




    
    In conjunction with our Series AA Convertible Preferred Stock, we are required to pay an
8% dividend on a semi-annual basis. We can make the dividend payments in cash or
equivalent shares of our common stock, at our discretion. During the quarter ended March
31, 2006, we paid a semi-annual dividend payment of $540,000 by issuing 130,378 common
shares, which shares were valued at $4.14 per share in accordance with methodology
prescribed in the Certificate of Designation of Rights, Preferences and Privileges of
Series AA Preferred Stock.
 Note 7  Preferred Stock
   Note 8
 Related Party Transactions
   Note 9  Commitments and Contingencies
  20




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Overview
  Fetter Prospect and the Greater Douglas Project Area  Powder River Basin, Wyoming
   21




---



##### Table of Contents



Krejci Oil Project (Powder River Basin, Wyoming)
    22




---



##### Table of Contents



Goliath Project, Williston Basin, North Dakota
   Big Sky Project, Williston Basin, Montana
  Results of Operations
  The Quarter Ended September 30, 2006 Compared with the Quarter Ended September 30, 2005
   23




---



##### Table of Contents



Three months ended September 30,2006
    
    
    2005Oil sold (barrels)
    
    
    2,354
    
    
    
    23,578Average oil price
    
    $
    60.97
    
    
    $
    59.94Oil revenue
    
    $
    143,520
    
    
    $
    1,413,334Gas sold (mcf)
    
    
    11,187
    
    
    
    16,473Average gas price
    
    $
    6.51
    
    
    $
    7.04Gas revenue
    
    $
    72,827
    
    
    $
    115,954Total oil and gas revenues
    
    $
    216,347
    
    
    $
    1,529,288Less lease operating expenses
    
    
    (56,300
    )
    
    
    (60,363
    )Less oil & gas amortization expense
    
    
    (132,000
    )
    
    
    (516,514
    )Less accretion of asset retirement obligation
    
    
    (6,556
    )
    
    
    (22
    )Impairment
    
    
    (860,000
    )
    
    
    Producing revenues less direct expenses
    
    
    (838,509
    )
    
    
    952,389Less depreciation of office facilities
    
    
    (10,715
    )
    
    
    (5,385
    )Less amortization of other intangible asset
    
    
    (45,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (963,992
    )
    
    
    (504,469
    )Add service fee revenue
    
    
    
    
    
    
    Income from operations
    
    $
    (1,858,216
    )
    
    $
    397,535Total barrels of oil equivalent (boe) sold
    
    
    4,219
    
    
    
    26,324Lease operating expense per boe sold
    
    $
    13.34
    
    
    $
    2.29Amortization expense per boe sold
    
    $
    31.29
    
    
    $
    19.62
    24




---



##### Table of Contents



The Nine-month Period Ended September 30, 2006 Compared with the Nine-month Period Ended
September 30, 2005
    Nine months ended September 30,2006
    
    
    2005Oil sold (barrels)
    
    
    31,161
    
    
    
    59,536Average oil price
    
    $
    55.38
    
    
    $
    53.28Oil revenue
    
    $
    1,725,630
    
    
    $
    3,172,368Gas sold (mcf)
    
    
    40,977
    
    
    
    42,636Average gas price
    
    $
    7.82
    
    
    $
    6.63Gas revenue
    
    $
    320,602
    
    
    $
    282,689Total oil and gas revenues
    
    $
    2,046,232
    
    
    $
    3,455,057Less lease operating expenses
    
    
    (222,093
    )
    
    
    (154,866
    )Less oil & gas amortization expense
    
    
    (740,639
    )
    
    
    (1,046,122
    )Less accretion of asset retirement obligation
    
    
    (8,343
    )
    
    
    (2,109
    )Less impairments
    
    
    (860,000
    )
    
    
    Producing revenues less direct expenses
    
    
    215,157
    
    
    
    2,251,960Less depreciation of office facilities
    
    
    (21,232
    )
    
    
    (6,748
    )Less amortization of other intangible asset
    
    
    (135,000
    )
    
    
    (75,000
    )Less general and administrative expenses
    
    
    (2,795,311
    )
    
    
    (1,636,478
    )Add service fee revenue
    
    
    1,530,000
    
    
    
    Income from operations
    
    $
    (1,206,386
    )
    
    $
    533,734Total barrels of oil equivalent (boe) sold
    
    
    37,991
    
    
    
    66,642Lease operating expense per boe sold
    
    $
    5.80
    
    
    $
    2.32Amortization expense per boe sold
    
    $
    19.50
    
    
    $
    15.70
 25




---



##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
  
 Item 4. CONTROLS AND PROCEDURES
   26




---



##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
   
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    The Companys Annual Meeting of Stockholders was held on August 21, 2006.
 (b)
    
    See Item 4(c) below.
 (c)
    
    At the Annual Meeting of Stockholders, the stockholders voted on the
following matters: (1) the election of seven directors to serve until
the next Annual Meeting of Stockholders or until their successors are
duly elected and qualified, (2) the approval of the 2006 Stock
Incentive Plan adopted by the Board of Directors; and (3) the approval
of an independent registered public accountant for 2006. The voting
results were as follows:
 27




---



##### Table of Contents



Director
    
    FOR
    
    AGAINST
    
    ABSTAINPatrick D. OBrien
    
    
    29,787,196
    
    
    
    47,607
    
    
    
    250Andrew P. Calerich
    
    
    29,599,101
    
    
    
    235,702
    
    
    
    250M.S. (Moni) Minhas
    
    
    29,790,683
    
    
    
    44,120
    
    
    
    250Jon R. Whitney
    
    
    29,623,584
    
    
    
    211,219
    
    
    
    250Nick DeMare
    
    
    29,790,687
    
    
    
    44,116
    
    
    
    250Kendell V. Tholstrom
    
    
    29,791,403
    
    
    
    43,400
    
    
    
    250Alan Gelfand
    
    
    27,461,271
    
    
    
    2,316,532
    
    
    
    57,250
  BROKERFOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTE15,805,119
    
    486,644
    
    48,301
    
    13,494,989
  FOR
    
    AGAINST
    
    ABSTAIN29,803,862
    
    16,792
    
    14,399
 
 Item 6. EXHIBITS
 Exhibit No.
    
    Description2.1*
    
    Agreement and Plan of Merger with Tower Colombia Corporation dated effective April 21, 2005.
(Incorporated by reference from the Companys Post-Effective Amendment No. 1 to Form SB-2,
filed on April 27, 2005.)3.1*
    
    Articles of Incorporation of the Company. (Incorporated by reference from the Companys Form
10-SB, file number 000-31547, filed on September 18, 2000.)3.2*
    
    Amendment to Articles of Incorporation of the Company. (Incorporated by reference from the
Companys Current Report on Form 8-K filed on February 3, 2003.)3.3*
    
    Certificate of Designation of Series A Preferred Stock. (Incorporated by reference from the
Companys Amendment No. 2 to Form SB-2, filed on January 31, 2005.)3.4*
    
    Bylaws of the Company (as revised on December 12, 2002). (Incorporated by reference from the
Companys Form 10-KSB/A, filed on November 18, 2003.)3.5*
    
    Certificate of Designation of Series AA 8% Preferred Stock. (Incorporated by reference from
the Companys Amendment No. 1 to Form S-3, filed on March 6, 2006.)4.1*
    
    2004 Stock Option Plan. (Incorporated by reference from the Companys Definitive Proxy
Statement, filed on June 16, 2004.)4.2*
    
    Form of Warrant Certificate issued as part of the private placement completed on July 22,
2005. (Incorporated by reference from the Companys Registration Statement on Form S-3, filed
on October 4, 2005.)4.3*
    
    Form of Placement Agent Warrant Certificate issued in connection with the private placement
completed on July 22, 2005. (Incorporated by reference from the Companys Registration
Statement on Form S-3, filed on October 4, 2005.)
 28




---



##### Table of Contents



Exhibit No.
    
    Description4.4*
    
    Registration Rights Agreement, dated September 1, 2006, by and among certain investors and
American Oil & Gas, Inc. (Incorporated by reference from the Companys Current Report on Form
8-K filed on September 6, 2006.)10.1
    
    Purchase and Sale Agreement dated March 31, 2006 by and between American Oil & Gas, Inc. and
Enerplus Resources (USA) Corporation10.2*
    
    Employment Agreement, effective as of June 29, 2006, between American Oil & Gas, Inc. and
Joseph B. Feiten. (Incorporated by reference from the Companys Current Report on Form 8-K
filed on August 31, 2006.)10.3*
    
    Stock Option Agreement, effective as of June 29, 2006, between American Oil & Gas, Inc. and
Joseph B. Feiten. (Incorporated by reference from the Companys Current Report on Form 8-K
filed on August 31, 2006.)10.4*
    
    Purchase and Sale Agreement, dated September 1, 2006, between SunStone Oil & Gas, LLC and
American Oil & Gas, Inc. (Incorporated by reference from the Companys Current Report on Form
8-K filed on September 6, 2006.)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 
 *
    
    Previously filed. 29




---



##### Table of Contents



SIGNATURES
  Signatures
    
    Title
    
    Date/s/ Patrick D. OBrien
    
    Chief Executive Officer and Chairman of the Board of Directors
    
    April 11, 2007Patrick D. OBrien/s/ Joseph B. Feiten
    
    Chief Financial Officer
    
    April 11, 2007Joseph B. Feiten
 30




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description2.1*
    
    Agreement and Plan of Merger with Tower Colombia Corporation dated effective April 21, 2005.
(Incorporated by reference from the Companys Post-Effective Amendment No. 1 to Form SB-2,
filed on April 27, 2005.)3.1*
    
    Articles of Incorporation of the Company. (Incorporated by reference from the Companys Form
10-SB, file number 000-31547, filed on September 18, 2000.)3.2*
    
    Amendment to Articles of Incorporation of the Company. (Incorporated by reference from the
Companys Current Report on Form 8-K filed on February 3, 2003.)3.3*
    
    Certificate of Designation of Series A Preferred Stock. (Incorporated by reference from the
Companys Amendment No. 2 to Form SB-2, filed on January 31, 2005.)3.4*
    
    Bylaws of the Company (as revised on December 12, 2002). (Incorporated by reference from the
Companys Form 10-KSB/A, filed on November 18, 2003.)3.5*
    
    Certificate of Designation of Series AA 8% Preferred Stock. (Incorporated by reference from
the Companys Amendment No. 1 to Form S-3, filed on March 6, 2006.)4.1*
    
    2004 Stock Option Plan. (Incorporated by reference from the Companys Definitive Proxy
Statement, filed on June 16, 2004.)4.2*
    
    Form of Warrant Certificate issued as part of the private placement completed on July 22,
2005. (Incorporated by reference from the Companys Registration Statement on Form S-3, filed
on October 4, 2005.)4.3*
    
    Form of Placement Agent Warrant Certificate issued in connection with the private placement
completed on July 22, 2005. (Incorporated by reference from the Companys Registration
Statement on Form S-3, filed on October 4, 2005.)4.4*
    
    Registration Rights Agreement, dated September 1, 2006, by and among certain investors and
American Oil & Gas, Inc. (Incorporated by reference from the Companys Current Report on Form
8-K filed on September 6, 2006.)10.1
    
    Purchase and Sale Agreement dated March 31, 2006 by and between American Oil & Gas, Inc. and
Enerplus Resources (USA) Corporation10.2*
    
    Employment Agreement, effective as of June 29, 2006, between American Oil & Gas, Inc. and
Joseph B. Feiten. (Incorporated by reference from the Companys Current Report on Form 8-K
filed on August 31, 2006.)10.3*
    
    Stock Purchase Agreement, effective as of June 29, 2006, between American Oil & Gas, Inc.
and Joseph B. Feiten. (Incorporated by reference from the Companys Current Report on Form 8-K
filed on August 31, 2006.)10.4*
    
    Purchase and Sale Agreement, dated September 1, 2006, between SunStone Oil & Gas, LLC and
American Oil & Gas, Inc. (Incorporated by reference from the Companys Current Report on Form
8-K filed on September 6, 2006.)
 31




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##### Table of Contents



Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 
 *
    
    Previously filed 32