##### 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 September 30, 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
      1




---



##### 



AMERICAN OIL & GAS, INC.
FORM 10-Q
INDEX
 PART I.   FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets  September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Income  Three and Nine Months Ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows  Nine Months Ended September 30, 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
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23PART II.   OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    24Item 6.
    
    Exhibits
    
    
    24Signatures
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  
  2




---



##### Table of Contents



PART I
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 
 AMERICAN OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2007
    
    
    2006(UNAUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    22,774,511
    
    
    $
    7,488,474Short-term investment
    
    
    725,800
    
    
    
    8,456,400Trade receivables
    
    
    770,263
    
    
    
    336,188Receivable for sale of oil and gas properties
    
    
    
    
    
    
    777,461Prepaid expenses
    
    
    200,171
    
    
    
    402,287Equipment inventory
    
    
    40,904
    
    
    
    40,904Deferred income taxes
    
    
    432,409
    
    
    
    Total current assets
    
    
    24,944,058
    
    
    
    17,501,714PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $42,600,948 at 9/30/07 and $33,263,390 at 12/31/06)
    
    
    52,970,119
    
    
    
    41,424,253Other property and equipment
    
    
    322,252
    
    
    
    295,485Total property and equipment
    
    
    53,292,371
    
    
    
    41,719,738Less-accumulated depreciation, depletion and amortization
    
    
    (3,442,212
    )
    
    
    (2,598,581
    )Net property and equipment
    
    
    49,850,159
    
    
    
    39,121,157OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset, net of accumulated amortization
    
    
    465,000
    
    
    
    600,000Drilling prepayments
    
    
    125,832
    
    
    
    233,058Other
    
    
    30,385
    
    
    
    10,000$
    87,085,902
    
    
    $
    69,136,397LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    934,420
    
    
    $
    1,964,000Asset retirement obligations
    
    
    32,396
    
    
    
    40,321Deferred income taxes
    
    
    
    
    
    
    2,172,785Preferred dividends payable
    
    
    112,608
    
    
    
    479,342Total current liabilities
    
    
    1,079,424
    
    
    
    4,656,448LONG-TERM LIABILITIESAsset retirement obligations
    
    
    272,738
    
    
    
    194,947Deferred income taxes
    
    
    1,413,365
    
    
    
    2,197,329Total long-term liabilities
    
    
    1,686,103
    
    
    
    2,392,276COMMITMENTS AND CONTINGENCIES(Note 12)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value; authorized 400,000 shares;
issued and outstanding  138,000 shares at 9/30/07 and
250,000 at 12/31/06; redemption value of $7,564,608 at 9/30/07 and
$13,979,342 at 12/31/06
    
    
    138
    
    
    
    250Common stock, $.001 par value, authorized 100,000,000 shares; issued and
outstanding  46,261,559 shares at 9/30/07 and 38,927,114 shares at
12/31/06
    
    
    46,262
    
    
    
    38,927Additional paid-in capital
    
    
    87,808,601
    
    
    
    59,174,874Accumulated deficit
    
    
    (2,782,835
    )
    
    
    (799,993
    )Accumulated other comprehensive income (loss)
    
    
    (751,791
    )
    
    
    3,673,61584,320,375
    
    
    
    62,087,673$
    87,085,902
    
    
    $
    69,136,397
   3




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUESOil and gas sales
    
    $
    780,963
    
    
    $
    216,347
    
    
    $
    1,580,553
    
    
    $
    2,046,232Other revenues
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    1,530,000780,963
    
    
    
    216,347
    
    
    
    1,592,553
    
    
    
    3,576,232OPERATING EXPENSESLease operating
    
    
    213,708
    
    
    
    56,300
    
    
    
    466,444
    
    
    
    222,093General and administrative
    
    
    969,845
    
    
    
    963,992
    
    
    
    3,271,647
    
    
    
    2,795,311Depletion, depreciation and amortization
    
    
    447,381
    
    
    
    187,715
    
    
    
    969,449
    
    
    
    896,871Accretion of asset retirement obligation
    
    
    6,537
    
    
    
    6,556
    
    
    
    18,142
    
    
    
    8,343Impairment
    
    
    
    
    
    
    860,000
    
    
    
    
    
    
    
    860,0001,637,471
    
    
    
    2,074,563
    
    
    
    4,725,682
    
    
    
    4,782,618INCOME (LOSS) FROM OPERATIONS
    
    
    (856,508
    )
    
    
    (1,858,216
    )
    
    
    (3,133,129
    )
    
    
    (1,206,386
    )OTHER INCOMEGain on sale of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,159,470Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    108,059
    
    
    
    Investment income
    
    
    368,148
    
    
    
    122,954
    
    
    
    733,718
    
    
    
    293,481368,148
    
    
    
    122,954
    
    
    
    841,777
    
    
    
    7,452,951INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (488,360
    )
    
    
    (1,735,262
    )
    
    
    (2,291,352
    )
    
    
    6,246,565Income tax expense-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense (reduction)  deferred
    
    
    (220,000
    )
    
    
    (473,587
    )
    
    
    (767,000
    )
    
    
    2,806,870NET INCOME (LOSS)
    
    
    (268,360
    )
    
    
    (1,261,675
    )
    
    
    (1,524,352
    )
    
    
    3,439,695Less dividends on preferred stock
    
    
    (149,040
    )
    
    
    (272,219
    )
    
    
    (453,490
    )
    
    
    (807,780
    )NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS
    
    $
    (417,400
    )
    
    $
    (1,533,894
    )
    
    $
    (1,977,842
    )
    
    $
    2,631,915NET INCOME (LOSS) PER COMMON SHARE:Basic
    
    $
    (.01
    )
    
    $
    (.04
    )
    
    $
    (.05
    )
    
    $
    .07Diluted
    
    $
    (.01
    )
    
    $
    (.04
    )
    
    $
    (.05
    )
    
    $
    .07Weighted average common shares outstanding:Basic
    
    
    46,250,379
    
    
    
    37,049,751
    
    
    
    43,734,060
    
    
    
    36,835,697Diluted
    
    
    46,250,379
    
    
    
    37,049,751
    
    
    
    43,734,060
    
    
    
    37,298,736
   4




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine months ended Sept. 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (1,524,352
    )
    
    $
    3,439,695Adjustments to reconcile to net cash provided by operating activities:Share-based compensation expenses
    
    
    879,879
    
    
    
    1,280,152Depletion, depreciation and amortization
    
    
    969,449
    
    
    
    896,871Accretion of asset retirement obligations
    
    
    18,142
    
    
    
    8,343Gains on sales of oil & gas properties
    
    
    
    
    
    
    (7,159,470
    )Gain on sales of short-term investments (Note 10)
    
    
    (108,059
    )Deferred income taxes
    
    
    (767,000
    )
    
    
    2,806,870Service fee in the form of a convertible note
    
    
    
    
    
    
    (1,530,000
    )Impairment provision
    
    
    
    
    
    
    860,000Changes in non-cash current assets and liabilities:Decrease (increase) in receivables
    
    
    (434,075
    )
    
    
    1,126,272Decrease (increase) in advances and prepaid expenses
    
    
    202,116
    
    
    
    (45,215
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    (334,475
    )
    
    
    266,752Net cash provided (used) by operating activities
    
    
    (1,098,375
    )
    
    
    1,950,270CASH FLOWS FROM INVESTING ACTIVITIESCash paid for oil and gas properties
    
    
    (12,093,224
    )
    
    
    (12,667,666
    )Proceeds from the sale of oil and gas properties
    
    
    777,461
    
    
    
    14,359,662Partial sale of investment in equity securities (Note 10)
    
    
    808,059
    
    
    
    Drilling prepayments
    
    
    
    
    
    
    (1,088,616
    )Cash paid for office equipment
    
    
    (26,767
    )
    
    
    (145,630
    )Cash paid for other long-term assets
    
    
    
    
    
    
    (10,000
    )Net cash provided (used) by investing activities
    
    
    (10,534,471
    )
    
    
    447,750CASH FLOWS FROM FINANCING ACTIVITIESGross proceeds from sale of common stock
    
    
    28,506,602
    
    
    
    Cash paid for stock offering and issuance costs
    
    
    (1,956,465
    )
    
    
    Proceeds from exercise of common stock warrants and stock options
    
    
    368,746
    
    
    
    129,960Net cash provided by financing activities
    
    
    26,918,883
    
    
    
    129,960NET INCREASE IN CASH
    
    
    15,286,037
    
    
    
    2,527,980CASH, BEGINNING OF PERIOD
    
    
    7,488,474
    
    
    
    6,022,822CASH, END OF PERIOD
    
    $
    22,774,511
    
    
    $
    8,550,802SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest expense and income taxes incurred
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIESConversion of preferred stock into common stock
    
    $
    6,048,000
    
    
    $
    Share-based compensation expense
    
    $
    879,879
    
    
    $
    1,280,152Share-based consideration to acquire oil and gas properties
    
    $
    
    
    
    $
    13,167,000Property sales proceeds in the form of a receivable
    
    $
    
    
    
    $
    2,484,362Preferred dividends paid in shares of common stock
    
    $
    820,224
    
    
    $
    1,080,000Drilling prepayments applied to drilling costs
    
    $
    107,226
    
    
    $
    Service fee received in the form of a convertible note (Note 10)
    
    $
    
    
    
    $
    1,530,000Property sold in exchange for a convertible note (Note 10)
    
    $
    
    
    
    $
    1,080,000Conversion of notes into investment in equity securities (Note 10)
    
    $
    
    
    
    $
    2,610,000
   5




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(UNAUDITED)
September 30, 2007
 Note 1  Company and Business
   Note 2  Basis of Presentation and Significant Accounting Policies
   USE OF ESTIMATES
 
 SIGNIFICANT ACCOUNTING POLICIES
   6




---



##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting for Certain Hybrid Financial
Instruments
 Accounting for Servicing of Financial Assets
 Accounting for Uncertainty in Income
Taxes
 GAS BALANCING
 RECLASSIFICATION 
 Note 3  Significant Changes in Proved Reserve Estimates
  Total barrelsof oilOil (bbls)
    
    
    Gas (mcf)
    
    
    equivalentProved reserves at December 31, 2006
    
    
    91,850
    
    
    
    809,847
    
    
    
    226,825Less 2007 year-to-date production
    
    
    (16,057
    )
    
    
    (102,060
    )
    
    
    (33,067
    )Proved reserve additions
    
    
    19,307
    
    
    
    11,731
    
    
    
    21,262Proved reserve revisions
    
    
    (18,117
    )
    
    
    339,884
    
    
    
    38,530Proved reserves at September 30, 2007
    
    
    76,983
    
    
    
    1,059,402
    
    
    
    253,550
  7




---



##### Table of Contents



Note 4  Property and Equipment
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization
    
    $
    42,600,948Evaluated costs
    
    
    10,369,17152,970,119Office equipment, furniture and software
    
    
    322,25253,292,371Less accumulated depreciation, depletion and amortization
    
    
    (3,442,212
    )Property and equipment
    
    $
    49,850,159
  Capitalized Costs (in millions)
    
    
    AcresProject (State)
    
    12/31/06
    
    
    Additions
    
    
    9/30/07
    
    
    Gross
    
    
    Net & WI
    *Fetter Project, Powder River Basin (WY)
    
    $
    18.7
    
    
    $
    0.3
    
    
    $
    19.0
    
    
    
    58,300
    
    
    
    52,100 (69
    %)West Douglas Project, Powder River Basin (WY)
    
    
    3.7
    
    
    
    0.3
    
    
    
    4.0
    
    
    
    55,100
    
    
    
    47,400 (45
    %)Douglas Project, Powder River Basin (WY)
    
    
    0.8
    
    
    
    0.0
    
    
    
    0.8
    
    
    
    14,800
    
    
    
    14,300 (90
    %)Krejci Oil Project, Powder River Basin (WY)
    
    
    2.3
    
    
    
    5.7
    
    
    
    8.0
    
    
    
    132,500
    
    
    
    126,600 (45
    %)Goliath Project, Williston Basin (ND)
    
    
    6.6
    
    
    
    0.4
    
    
    
    7.0
    
    
    
    88,500
    
    
    
    65,400 (50
    %)Other projects
    
    
    1.2
    
    
    
    2.6
    
    
    
    3.8Total unevaluated costs
    
    $
    33.3
    
    
    $
    9.3
    
    
    $
    42.6Evaluated Costs
    
    $
    8.2
    
    
    $
    2.2
    
    
    $
    10.4
 *
    
    Net acres represent the proportion of gross surface acreage for which we and our working interest
partners have leased the underlying mineral rights for exploration and production. Our average
working interest percentage of the net acres is shown in parentheses. For the Fetter project, the
average 69% effective working interest shown is that which we
effectively will own after RTA earns its 25%
working interest in Fetter net acreage by completing two wells currently being drilled at Fetter.
  8




---



##### Table of Contents



The West Douglas Project acreage extends to its east within four miles of the Fetter Project
acreage. The Douglas Project acreage lies largely between the West Douglas and Fetter Projects or
in the townships immediately north of Fetter acreage. After RTA earns its 50% working interest
in West Douglas acreage by completing a well in late 2007, our
effective working interest in West Douglas
acreage will become 45%.
       Nine-month PeriodEnded September 30,2007
    
    
    2006Amortization of costs for evaluated oil and gas properties
    
    $
    786,818
    
    
    $
    740,639Amortization of Other Intangible Asset
    
    
    135,000
    
    
    
    135,000Depreciation of office equipment, furniture and software
    
    
    47,631
    
    
    
    21,232Total DD&A expense
    
    $
    969,449
    
    
    $
    896,871
  9




---



##### Table of Contents



Note 5  Asset Retirement Obligations
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Beginning asset retirement obligation
    
    $
    276,011
    
    
    $
    112,269
    
    
    $
    235,268
    
    
    $
    117,011Liabilities incurred
    
    
    70,822
    
    
    
    111,073
    
    
    
    131,970
    
    
    
    112,287Liabilities settled
    
    
    
    
    
    
    
    
    
    
    (22,898
    )
    
    
    (7,745
    )Revisions in estimated liabilities
    
    
    (48,236
    )
    
    
    34,801
    
    
    
    (57,348
    )
    
    
    34,801Accretion
    
    
    6,537
    
    
    
    6,556
    
    
    
    18,142
    
    
    
    8,345Ending asset retirement obligation
    
    $
    305,134
    
    
    $
    264,699
    
    
    $
    305,134
    
    
    $
    264,699Current portion of obligation, end of
period
    
    $
    32,396
    
    
    $
    177,527
    
    
    $
    32,396
    
    
    $
    177,527
 Note 6  Income Taxes
 Accounting for Income
Taxes,
    Accounting for
Uncertainty in Income Taxes
  10




---



##### Table of Contents



Note 7  Earnings per Share
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss) to common stockholders
    
    $
    (417,400
    )
    
    $
    (1,533,894
    )
    
    $
    (1,977,842
    )
    
    $
    2,631,915Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income adjusted for effects of dilution
    
    $
    (417,400
    )
    
    $
    (1,533,894
    )
    
    $
    (1,977,842
    )
    
    $
    2,631,915Basic Weighted Ave. Common Shares Outstanding
    
    
    46,250,379
    
    
    
    37,049,751
    
    
    
    43,734,060
    
    
    
    36,835,697Add dilutive effects of options and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    463,039Add dilutive effects of convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted Weighted Ave. Common Shares Outstanding
    
    
    46,250,379
    
    
    
    37,049,751
    
    
    
    43,734,060
    
    
    
    37,298,736Net income per common share  basic
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    0.07Net income per common share  diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    0.07
 Note 8  Equity
 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 July 22, 2007, we paid
a semi-annual dividend payment of $298,080 by issuing 46,318 common shares, which shares
were valued at $6.4356 per share in accordance with methodology prescribed in the
Certificate Of Designation Of Rights, Preferences And Privileges Of Series AA Preferred
Stock.
    
    Additional Paid-In Capital increased by an additional $272,635 for recognition, in
accordance with SFAS 123R, of (a) $223,315 in share-based compensation related to stock
options and (b) $49,320 in share-based compensation related to shares granted and vesting
over time.
  11




---



##### Table of Contents




    
    We granted 9,600 shares of common stock for investor relation services for the twelve
months ending June 30, 2008. The shares are held in escrow by the Company until June 30,
2008.
  
    
    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 $6.1547 per share in accordance with methodology prescribed in the
Certificate Of Designation Of Rights, Preferences And Privileges Of Series AA Preferred
Stock.
    
    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.
    
    In April, 2007, we sold a total of 6,001,390 shares of common stock at a price of $4.75
per share, adding $28,500,601 to Additional Paid in Capital. We paid and charged against
Additional Paid-in Capital a $1,624,876 placement fee, a $45,000 AMEX listing fee, $161,570
in other offering fees and $125,019 in related legal and accounting fees.
    
    In April and May of 2007, we received $368,746 from the exercise of employee stock
options for 79,300 shares of common stock.
    
    On June 15, 2007, we granted 100,000 restricted and escrowed shares of common stock to
our new Vice President of Exploration that vest after five years of service or upon a
change in control.
    
    For the quarter ended March 31, 2007, Additional Paid-In Capital increased by an
additional $298,814 for recognition, in accordance with SFAS 123R, of (a) $277,939 in
share-based compensation related to stock options, (b)$17,955 in share-based compensation
related to common shares granted and vesting over time, and (c) $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.
    
    For the quarter ended June 30, 2007, Additional Paid-In Capital increased by an
additional $301,194 for recognition, in accordance with SFAS 123R, of (a) $250,569 in
share-based compensation related to stock options, (b) $21,964 in net excess tax benefits
relating to stock option exercises and (c) $28,661 in share-based compensation related to
 shares granted and vesting over time.
  PREFERRED STOCK
  12




---



##### Table of Contents



OTHER COMPREHENSIVE INCOME
 WARRANTS
 Issue Date
    
    Common Shares
    
    Exercise Price
    
    Expiration 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, 20081,027,980
  STOCK OPTIONS
  Stock Options as of September 30, 2007
 Commitments and Contingencies
  13




---



##### Table of Contents



Weighted Avg.Number of
    
    
    ExerciseShares
    
    
    PriceOptions outstanding  December 31, 2006 (985,498 exercisable)
    
    
    2,186,000
    
    
    $
    3.60Options granted in the nine months ended September 30, 2007
    
    
    699,000
    
    
    $
    5.80Less options forfeited in the nine months ended September 30,
2007
    
    
    (235,700
    )
    
    $
    5.03Less options exercised in the nine months ended September 30,
2007
    
    
    (79,300
    )
    
    $
    4.65Options outstanding  September 30, 2007 (1,305,875 exercisable)
    
    
    2,570,000
    
    
    $
    4.06
  September 30,
    
    September 30,2007
    
    2006Model
    
    Modified Binomial
    
    Black-ScholesOption life (in years)
    
    4 to 5
    
    5 to 8Annual volatility over option life
    
    35%
    
    33% to 63%Annual volatility for black-out periods
    
    0%
    
    33% to 63%Risk-free interest rate
    
    4.7% to 5.1%
    
    4.5% to 5.2%Pre-vesting forfeiture rate
    
    0%
    
    0%Dividend yield
    
    0%
    
    0%Intrinsic Value /share that urges exercise
    
    $2.00 to $2.16
    
    n/a for model
     14




---



##### Table of Contents



Exercise
    
    
    Remainingprice
    
    
    contractual
    
    
    Number of sharesper share
    
    
    life (years)
    
    
    Outstanding
    
    
    Exercisable$
    1.25
    
    
    
    2.4
    
    
    
    403,000
    
    
    
    403,000$
    2.38
    
    
    
    3.2
    
    
    
    100,000
    
    
    
    100,000$
    2.48
    
    
    
    3.3
    
    
    
    80,000
    
    
    
    80,000$
    3.66
    
    
    
    5.1
    
    
    
    750,000
    
    
    
    375,000$
    4.30
    
    
    
    5.2
    
    
    
    9,000
    
    
    
    3,000$
    4.57
    
    
    
    5.4
    
    
    
    9,000
    
    
    
    3,000$
    4.66
    
    
    
    4.6
    
    
    
    60,000
    
    
    
    40,000$
    4.95
    
    
    
    8.7
    
    
    
    250,000
    
    
    
    90,000$
    4.98
    
    
    
    6.1
    
    
    
    200,000
    
    
    
    90,000$
    5.15
    
    
    
    6.7
    
    
    
    30,000
    
    
    
    $
    5.80
    
    
    
    4.9
    
    
    
    75,000
    
    
    
    50,000$
    5.84
    
    
    
    7.7
    
    
    
    400,000
    
    
    
    80,000$
    6.03
    
    
    
    5.4
    
    
    
    195,000
    
    
    
    73,125$
    6.70
    
    
    
    6.8
    
    
    
    9,000
    
    
    
    2,570,000
    
    
    
    1,387,125Weighted Ave. remaining contractual life
    
    5.4 years
    
    4.5 yearsAggregate intrinsic value, Sept. 30, 2007
    
    $
    4,466,270
    
    
    $
    3,520,090
 Note 9    Material Related Party Transactions
  Note 10  Short-term Investment
    15




---



##### Table of Contents



Note 11  Investment Income from Cash Equivalents
  Note 12  Commitments and Contingencies
  North Finn Option
     16




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Overview
   17




---



##### Table of Contents



Fetter Project  Powder River Basin, Wyoming
     West Douglas Project  Powder River Basin, Wyoming
 1 2
  18




---



##### Table of Contents



Krejci Oil Project Powder River Basin, Wyoming
  Goliath Project, Williston Basin, North Dakota
   Results of Operations
  The Quarter Ended September 30, 2007 Compared with the Quarter Ended September 30, 2006.
   19




---



##### Table of Contents



Three months ended September 30,2007
    
    
    2006Oil sold (barrels)
    
    
    7,222
    
    
    
    2,354Average oil price
    
    $
    67.18
    
    
    $
    60.97Oil revenue
    
    $
    485,185
    
    
    $
    143,520Gas sold (mcf)
    
    
    51,345
    
    
    
    11,187Average gas price
    
    $
    5.76
    
    
    $
    6.51Gas revenue
    
    $
    295,778
    
    
    $
    72,827Total oil and gas revenues
    
    $
    780,963
    
    
    $
    216,347Less lease operating expenses
    
    
    (213,708
    )
    
    
    (56,300
    )Less oil & gas amortization expense
    
    
    (386,000
    )
    
    
    (132,000
    )Less accretion of asset retirement obligation
    
    
    (6,537
    )
    
    
    (6,556
    )Less impairment of oil and gas assets
    
    
    
    
    
    
    (860,000
    )Producing revenues less direct expenses
    
    
    174,718
    
    
    
    (838,509
    )Less depreciation of office facilities
    
    
    (16,381
    )
    
    
    (10,715
    )Less amortization of other intangible asset
    
    
    (45,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (969,845
    )
    
    
    (963,992
    )Income (loss) from operations
    
    $
    (856,508
    )
    
    $
    (1,858,216
    )Total barrels of oil equivalent (boe) sold
    
    
    15,780
    
    
    
    4,219Lease operating expense per boe sold
    
    $
    13.54
    
    
    $
    13.35Amortization expense per boe sold
    
    $
    24.46
    
    
    $
    31.29
   The Nine-month Period ended September 30, 2007 Compared with the Nine-month Period ended
September 30, 2006
   20




---



##### Table of Contents



Nine months ended September 30,2007
    
    
    2006Oil sold (barrels)
    
    
    16,057
    
    
    
    31,161Average oil price
    
    $
    60.74
    
    
    $
    55.38Oil revenue
    
    $
    975,279
    
    
    $
    1,725,630Gas sold (mcf)
    
    
    102,060
    
    
    
    40,977Average gas price
    
    $
    5.93
    
    
    $
    7.82Gas revenue
    
    $
    605,274
    
    
    $
    320,602Total oil and gas revenues
    
    $
    1,580,553
    
    
    $
    2,046,232Less lease operating expenses
    
    
    (466,444
    )
    
    
    (222,093
    )Less oil & gas amortization expense
    
    
    (786,818
    )
    
    
    (740,639
    )Less accretion of asset retirement obligation
    
    
    (18,142
    )
    
    
    (8,343
    )Less Impairment of oil and gas assets
    
    
    
    
    
    
    (860,000
    )Producing revenues less direct expenses
    
    
    309,149
    
    
    
    215,157Less depreciation of office facilities
    
    
    (47,631
    )
    
    
    (21,232
    )Less amortization of other intangible asset
    
    
    (135,000
    )
    
    
    (135,000
    )Less general and administrative expenses
    
    
    (3,271,647
    )
    
    
    (2,795,311
    )Add other revenue
    
    
    12,000
    
    
    
    1,530,000Income (loss) from operations
    
    $
    (3,133,129
    )
    
    $
    (1,206,386
    )Total barrels of oil equivalent (boe) sold
    
    
    33,067
    
    
    
    37,991Lease operating expense per boe sold
    
    $
    14.11
    
    
    $
    5.85Amortization expense per boe sold
    
    $
    23.79
    
    
    $
    19.50
      21




---



##### Table of Contents



Liquidity and Capital Resources
      Net Cash Provided By Operating Activities
 2007
    
    
    2006Major components of cash
    
    January 1 to
    
    
    July 1 to
    
    
    January 1 to
    
    
    January 1 to
    
    
    Change fromprovided (used) by operations
    
    June 30
    
    
    Sept. 30
    
    
    Sept. 30
    
    
    Sept. 30
    
    
    2006Cash increase
(decrease) from
changes in non-cash
current assets &
liabilities
    
    $
    (142,809
    )
    
    $
    (423,625
    )
    
    $
    (566,434
    )
    
    $
    1,347,809
    
    
    $
    (1,914,243
    )Net working capital
provided (used) by
operations
    
    
    (770,134
    )
    
    
    238,193
    
    
    
    (531,941
    )
    
    
    602,461
    
    
    
    (1,134,402
    )Cash provided
(used) by
operations
    
    $
    (912,943
    )
    
    $
    (185,432
    )
    
    $
    (1,098,375
    )
    
    $
    1,950,270
    
    
    $
    (3,048,645
    )
  Net Cash Provided By or Used In Investing Activities
  22




---



##### Table of Contents



Net Cash Provided By Financing Activities
 
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Commodity Price Risk
  Operating Cost Risk
  
 Item 4.
    
    CONTROLS AND PROCEDURES
     23




---



##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1A.
    
    RISK FACTORS
  
 Item 6.
    
    EXHIBITS
 Exhibit No.
    
    Description10.1
    
    West Douglas Participation Agreement, entered into June 28,
2007, between Red Technology Alliance, North Finn LLC and
American Oil & Gas, Inc. (Incorporated by reference from the
Companys Current Report on Form 8-K filed on July 2, 2007.)31.1
    
    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
 
 
 SIGNATURES
  Signatures
    
    Title
    
    Date/s/ Patrick D.  OBrien

Patrick D. OBrien
    
    Chief Executive Officer and
Chairman of The Board of
Directors
    
    November 7, 2007/s/ Joseph B. Feiten

Joseph B. Feiten
    
    Chief Financial Officer
    
    November 7, 2007
  24