##### Table of Contents



United States Securities And Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 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 þ o
 o þ




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##### 



AMERICAN OIL & GAS, INC.
FORM 10-Q
INDEX
 PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets  March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Income  Three Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows  Three Months Ended March 31, 2007 and 2006
    
    
    5Notes
to Consolidated Financial Statements
    
    
    6Summary of Significant Accounting Policies
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATION
    
    
    20Item 1A. Risk Factors
    
    
    20Item 6.Exhibits
    
    
    20Signatures
    
    
    21
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PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 
 AMERICAN OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(UNAUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    4,130,822
    
    
    $
    7,488,474Short-term investment
    
    
    5,794,200
    
    
    
    8,456,400Trade receivables
    
    
    377,756
    
    
    
    336,188Receivable for sale of oil and gas properties
    
    
    465,481
    
    
    
    777,461Prepaid expenses
    
    
    377,065
    
    
    
    402,287Inventory
    
    
    40,904
    
    
    
    40,904Total current assets
    
    
    11,186,228
    
    
    
    17,501,714PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $34,551,772 at 3/31/07and $33,263,390 at 12/31/06)
    
    
    43,746,923
    
    
    
    41,424,253Other property and equipment
    
    
    294,218
    
    
    
    295,485Total property and equipment
    
    
    44,041,141
    
    
    
    41,719,738Less-accumulated depreciation, depletion and amortization
    
    
    (2,847,092
    )
    
    
    (2,598,581
    )Net property and equipment
    
    
    41,194,049
    
    
    
    39,121,157OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset, net of accumulated amortization
    
    
    555,000
    
    
    
    600,000Drilling prepayments
    
    
    18,045
    
    
    
    233,058Other
    
    
    10,000
    
    
    
    10,000$
    64,633,790
    
    
    $
    69,136,397LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    821,034
    
    
    $
    1,964,000Asset retirement obligations
    
    
    65,680
    
    
    
    40,321Deferred income taxes
    
    
    1,183,249
    
    
    
    2,172,785Preferred dividends payable
    
    
    112,608
    
    
    
    479,342Total current liabilities
    
    
    2,182,571
    
    
    
    4,656,448LONG-TERM LIABILITIESAsset retirement obligations
    
    
    207,082
    
    
    
    194,947Deferred income taxes
    
    
    1,844,329
    
    
    
    2,197,329Total long-term liabilities
    
    
    2,051,411
    
    
    
    2,392,276COMMITMENTS AND CONTINGENCIES(Note 7)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value; authorized 400,000 shares;
issued and outstanding  138,000 shares at 3/31/07 and
250,000 at 12/31/06; redemption value of $7,564,608 at 3/31/07 and
$13,979,342 at 12/31/06
    
    
    138
    
    
    
    250Common stock, $.001 par value, authorized 100,000,000 shares; Issue and
outstanding  40,024,951 shares at 3/31/07 and 38,927,114 shares
at 12/31/06
    
    
    40,025
    
    
    
    38,927Additional paid-in capital
    
    
    60,042,001
    
    
    
    59,210,784Deferred compensation
    
    
    (17,955
    )
    
    
    (35,910
    )Accumulated deficit
    
    
    (1,665,352
    )
    
    
    (799,993
    )Accumulated other comprehensive income
    
    
    2,000,951
    
    
    
    3,673,61560,399,808
    
    
    
    62,087,673$
    64,633,790
    
    
    $
    69,136,397
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AMERICAN OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three months endedMarch 31,2007
    
    
    2006REVENUESOil and gas sales
    
    $
    395,500
    
    
    $
    1,570,852OPERATING EXPENSESLease operating
    
    
    103,149
    
    
    
    101,191General and administrative
    
    
    1,132,842
    
    
    
    1,072,570Depletion, depreciation and amortization
    
    
    284,329
    
    
    
    564,864Accretion of asset retirement obligation
    
    
    5,485
    
    
    
    9791,525,805
    
    
    
    1,739,604LOSS FROM OPERATIONS
    
    
    (1,130,305
    )
    
    
    (168,752
    )OTHER INCOMEGain on sale of oil and gas properties
    
    
    
    
    
    
    4,261,854Investment income
    
    
    67,356
    
    
    
    32,59867,356
    
    
    
    4,294,452INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (1,062,949
    )
    
    
    4,125,700Income tax expense-current
    
    
    
    
    
    
    Income tax expense (reduction) deferred
    
    
    (353,000
    )
    
    
    1,656,045NET INCOME (LOSS)
    
    
    (709,949
    )
    
    
    2,469,655Less dividends on preferred stock
    
    
    (155,410
    )
    
    
    (266,301
    )NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (865,359
    )
    
    $
    2,203,354NET INCOME (LOSS) PER COMMON SHARE:Basic
    
    $
    (.02
    )
    
    $
    .06Diluted
    
    $
    (.02
    )
    
    $
    .06Weighted average common shares outstanding:Basic
    
    
    39,908,426
    
    
    
    36,619,840Diluted
    
    
    39,908,426
    
    
    
    37,535,516
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AMERICAN OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 Three months endedMarch 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (709,949
    )
    
    $
    2,469,655Adjustments to reconcile net income to
net cash provided by operating activities:Share-based compensation expenses
    
    
    328,014
    
    
    
    562,815Depletion, depreciation and amortization
    
    
    284,329
    
    
    
    564,864Accretion of asset retirement obligations
    
    
    5,485
    
    
    
    979Gain on sale of oil & gas properties
    
    
    
    
    
    
    (4,261,854
    )Deferred income taxes
    
    
    (353,000
    )
    
    
    1,656,045Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    (41,568
    )
    
    
    425,672Decrease in prepaid expenses
    
    
    25,222
    
    
    
    32,954Increase (decrease) in accounts payable and accrued liabilities
    
    
    (167,966
    )
    
    
    (285,305
    )Net cash provided by operating activities
    
    
    (629,433
    )
    
    
    1,165,825CASH FLOWS FROM INVESTING ACTIVITIESCash paid for oil and gas properties
    
    
    (3,041,466
    )
    
    
    (3,707,320
    )Proceeds from the sale of oil and gas properties
    
    
    311,980
    
    
    
    10,678,504Cash paid for office equipment
    
    
    
    
    
    
    (8,983
    )Cost adjustment on prior improvements of office lease
    
    
    1,267
    
    
    
    Net cash (used) provided by investing activities
    
    
    (2,728,219
    )
    
    
    6,962,201CASH FLOWS FROM FINANCING ACTIVITIESProceeds from exercise of common stock warrants
    
    
    0
    
    
    
    25,288Net cash provided by financing activities
    
    
    0
    
    
    
    25,288NET (DECREASE) INCREASE IN CASH
    
    
    (3,357,652
    )
    
    
    8,153,314CASH, BEGINNING OF PERIODS
    
    
    7,488,474
    
    
    
    6,022,822CASH, END OF PERIODS
    
    $
    4,130,822
    
    
    $
    14,176,136SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING
ACTIVITIESConversion of preferred stock into common stock
    
    $
    6,048,000
    
    
    $
    Other comprehensive loss for decline in fair
value of short-term investment
    
    $
    (1,672,664
    )Preferred dividends paid in shares of common stock
    
    $
    522,144
    
    
    $
    540,000Share-based compensation expenses
    
    $
    328,014
    
    
    $
    562,815Drilling prepayments applied to drilling costs
    
    $
    215,103
    
    
    $
    581,077
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AMERICAN OIL & GAS, INC.
Notes to Consolidated Financial Statements
(UNAUDITED)
March 31, 2007
     
 Note 1
 Summary of Significant Accounting Policies
 USE OF ESTIMATES
 CASH EQUIVALENTS
 SHORT-TERM INVESTMENTS 
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OIL AND GAS PROPERTIES 
    OTHER PROPERTY AND EQUIPMENT 
 IMPAIRMENT  Accounting for the
Impairment and Disposal of Long-Lived Assets,
 BUSINESS COMBINATIONS Business Combinations
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GOODWILL Goodwill and Other Intangible
Assets
  OTHER INTANGIBLE ASSET
 ASSET RETIREMENT OBLIGATIONS 
  Three-month PeriodEnded March 31,2007
    
    
    2006Asset retirement obligation, beginning of
period
    
    $
    235,268
    
    
    $
    117,011Liabilities incurred
    
    
    35,824
    
    
    
    0Liabilities settled
    
    
    
    
    
    
    (7,745
    )Accretion
    
    
    5,485
    
    
    
    979Revisions in estimated liabilities
    
    
    (3,815
    )
    
    
    Asset retirement obligation, end of period
    
    $
    272,762
    
    
    $
    110,245Current portion of obligation, end of period
    
    $
    65,680
    
    
    $
    
 INCOME TAXES Accounting
for Income Taxes
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REVENUE RECOGNITION AND GAS BALANCING
 NET INCOME (LOSS) PER SHARE
 
 Net
    
    
    
    
    
    PerQuarter ended March 31, 2006
    
    Income . . .
    
    Shares
    
    Share AmountFor basic earnings per share
    
    $
    2,203,354
    
    
    
    36,619,840
    
    
    $
    0.06Adjustments for dilution:Stock options
    
    
    
    
    
    
    892,074Warrants
    
    
    
    
    
    
    23,602Convertible preferred stock
    
    
    
    
    
    
    For diluted earnings per share
    
    $
    2,203,354
    
    
    
    37,535,516
    
    
    $
    0.06
 SHARE-BASED COMPENSATION  Share-Based
Payment
 OFF BALANCE SHEET ARRANGEMENTS 
 RECLASSIFICATION 
 RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting for Certain Hybrid Financial
Instruments
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Accounting for Uncertainty in Income
Taxes
 Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans.
  The Fair Value Option for Financial Assets and
Financial Liabilities
 Note 2  Property and Equipment
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization or
ceiling test
    
    $
    34,551,772Evaluated costs
    
    
    9,195,15143,746,923Office equipment, furniture and software
    
    
    294,21844,041,141Less accumulated depreciation, depletion and amortization
    
    
    (2,847,092
    )Property and equipment
    
    $
    41,194,049
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Three-month PeriodEnded March 31,2007
    
    
    2006Amortization of costs for evaluated oil and gas properties
    
    $
    223,818
    
    
    $
    515,899Amortization of Other Intangible Asset
    
    
    45,000
    
    
    
    45,000Depreciation of office equipment, furniture and software
    
    
    15,511
    
    
    
    3,965Total DD&A expense
    
    $
    284,329
    
    
    $
    564,864
 Note 3  Income Taxes
 Accounting for Income
Taxes,
   Accounting for
Uncertainty in Income Taxes
  Note 4  Equity
 COMMON STOCK 
 
    
    In January 2007, holders of 112,000 shares of our Series AA convertible preferred stock converted those shares into 1,008,000 shares of our common stock.
    
    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. Effective January 22, 2007, we
paid a semi-annual dividend payment of $522,144 by issuing 84,837 common shares, which shares were valued at
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
    
    In February 2007, we paid a total of 5,000 shares of restricted common stock to our new
Vice-President of Land on his first day of employment. We valued these shares at $5.84 per
share, which was the closing price of our common stock on the date of payment, and charged
$29,200 to compensation expense.
    
    For the quarter ended March 31, 2007, Additional Paid-In Capital increased by $280,859
for recognition, in accordance with SFAS 123R, of $277,939 in share-based compensation
related to stock options and $2,920 in share-based compensation related to 4,000 shares
granted to our new Vice-President of Land and vesting over the year ending February 12,
2008.
    
    The Deferred Compensation account in Equity decreased $17,955 in recognition of
previously deferred compensation relating to a prior award of common stock held until
associated services were performed.
  PREFERRED STOCK 
  OTHER
COMPREHENSIVE INCOME
 WARRANTS
 Common
    
    Exercise
    
    ExpirationIssue Date
    
    Shares
    
    Price
    
    DateJuly 22, 2005
    
    
    671,880
    
    
    $
    6.00
    
    
    December 31, 2007July 22, 2005
    
    
    281,250
    
    
    $
    6.00
    
    
    July 21, 2008September 15, 2003
    
    
    20,000
    
    
    $
    1.15
    
    
    September 15, 2008July 23, 2003 to
September 24, 2003
    
    
    54,850
    
    
    $
    0.75
    
    
    July 24, 2008 to September 24, 2008August 10, 2006
    
    
    100,000
    
    
    $
    4.90
    
    
    April 9, 20071,127,980
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STOCK
OPTIONS 
  Stock Options as of March 31, 2007
 Commitments and Contingencies
  Weighted Avg.Number of Shares
    
    
    Exercise PriceOptions outstanding  December 31, 2006 (985,498
exercisable)
    
    
    2,186,000
    
    
    $
    3.60Options granted in the quarter ended March 31, 2007
    
    
    510,000
    
    
    $
    5.94Less options forfeited in the quarter
    
    
    (216,875
    )
    
    $
    5.01Less options exercised in the quarter
    
    
    0
    
    
    
    0Options outstanding  March 31, 2007 (985,498 exercisable)
    
    
    2,479,125
    
    
    $
    3.96
  March 31, 2007
    
    March 31, 2006Model
    
    Modified Binomial
    
    Black-ScholesOption life (in years)
    
    4 to 5
    
    8Annual volatility over option life
    
    35%
    
    63%Annual volatility for black-out periods
    
    0%
    
    63%Risk-free interest rate
    
    4.7%
    
    4.5%Pre-vesting forfeiture rate
    
    0%
    
    0%Dividend yield
    
    0%
    
    0%Intrinsic Value /share that urges exercise
    
    $2.00
    
    n/a for model
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WeightedExercise
    
    
    
    
    
    
    
    
    
    
    remainingprice
    
    
    Number of shares
    
    
    contractualper share
    
    
    Outstanding
    
    
    Exercisable
    
    
    life (years)$
    1.25
    
    
    
    403,000
    
    
    
    403,000
    
    
    
    2.92.38
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    3.82.48
    
    
    
    80,000
    
    
    
    80,000
    
    
    
    3.83.66
    
    
    
    750,000
    
    
    
    249,998
    
    
    
    5.64.30
    
    
    
    9,000
    
    
    
    3,000
    
    
    
    5.74.57
    
    
    
    9,000
    
    
    
    3,000
    
    
    
    5.94.65
    
    
    
    90,000
    
    
    
    90,000
    
    
    
    8.84.66
    
    
    
    60,000
    
    
    
    20,000
    
    
    
    5.14.95
    
    
    
    250,000
    
    
    
    50,000
    
    
    
    9.24.98
    
    
    
    200,000
    
    
    
    50,000
    
    
    
    6.65.80
    
    
    
    75,000
    
    
    
    25,000
    
    
    
    5.45.84
    
    
    
    250,000
    
    
    
    50,000
    
    
    
    6.96.03
    
    
    
    203,125
    
    
    
    32,500
    
    
    
    5.72,479,125
    
    
    
    1,156,498Wgtd. Ave. remaining contractual life
    
    
    
    
    
    5.7 years
    
    4.6 yearsAggregate intrinsic value
    
    
    
    
    
    $
    3,653,125
    
    
    $
    2,755,925
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Note 5    Material Related Party Transactions
  Note 6  Subsequent Events
  Note 7  Commitments and Contingencies
  North Finn Option
    
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  15




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Overview
  Fetter Prospect and the Greater Douglas Project Area  Powder River Basin, Wyoming
   16




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Krejci Oil Project (Powder River Basin, Wyoming)
  Goliath Project, Williston Basin, North Dakota
  Results of Operations
  The Quarter Ended March 31, 2007 Compared with the Quarter Ended March 31, 2006.
  17




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Liquidity and Capital Resources
    18




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Net Cash Provided By Operating Activities
 Net Cash Provided By or Used In Investing Activities
 Net Cash Provided By Financing Activities
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Commodity Price Risk
  Operating Cost Risk
  
 Item 4. CONTROLS AND PROCEDURES
  19




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PART II.
OTHER INFORMATION
 
 Item 1A  RISK FACTORS
  
 Item 6. EXHIBITS
 Exhibit No.
    
    Description31.1
    
    302 Certification of Chief Executive Officer31.2
    
    302 Certification of Chief Financial Officer32.1
    
    906 Certification of Chief Executive Officer32.2
    
    906 Certification of Chief Financial Officer
 20




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SIGNATURES
  Signatures
    
    Title
    
    Date/s/ Patrick D. OBrien
    
    Chief Executive Officer and Chairman of The Board of Directors
    
    May 10, 2007Patrick D. OBrien/s/ Joseph B. Feiten
    
    Chief Financial Officer
    
    May 10, 2007Joseph B. Feiten
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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    302 Certification of Chief Executive Officer31.2
    
    302 Certification of Chief Financial Officer32.1
    
    906 Certification of Chief Executive Officer32.2
    
    906 Certification of Chief Financial Officer