##### 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 June 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
 o þ o
 o þ




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##### 



AMERICAN OIL & GAS, INC.
FORM 10-Q
INDEX
 PART I.    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets  June 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Income  Three and Six Months Ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows  Six Months Ended June 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
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21PART II.   OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22Item 6.
    
    Exhibits
    
    
    22Signatures
    
    
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 
 AMERICAN OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,2007
    
    
    December 31,2006(UNAUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    30,051,741
    
    
    $
    7,488,474Short-term investment
    
    
    1,948,200
    
    
    
    8,456,400Trade receivables
    
    
    397,265
    
    
    
    336,188Receivable for sale of oil and gas properties
    
    
    
    
    
    
    777,461Prepaid expenses
    
    
    243,658
    
    
    
    402,287Equipment Inventory
    
    
    40,904
    
    
    
    40,904Total current assets
    
    
    32,681,768
    
    
    
    17,501,714PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $38,082,961 at 6/30/07 and $33,263,390 at 12/31/06)
    
    
    47,703,996
    
    
    
    41,424,253Other property and equipment
    
    
    299,416
    
    
    
    295,485Total property and equipment
    
    
    48,003,412
    
    
    
    41,719,738Less-accumulated depreciation, depletion and amortization
    
    
    (3,039,831
    )
    
    
    (2,598,581
    )Net property and equipment
    
    
    44,963,581
    
    
    
    39,121,157OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset, net of accumulated amortization
    
    
    510,000
    
    
    
    600,000Drilling prepayments
    
    
    14,354
    
    
    
    233,058Other
    
    
    30,384
    
    
    
    10,000$
    89,870,555
    
    
    $
    69,136,397LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    2,742,480
    
    
    $
    1,964,000Asset retirement obligations
    
    
    43,556
    
    
    
    40,321Deferred income taxes
    
    
    14,195
    
    
    
    2,172,785Preferred dividends payable
    
    
    261,648
    
    
    
    479,342Total current liabilities
    
    
    3,061,879
    
    
    
    4,656,448LONG-TERM LIABILITIESAsset retirement obligations
    
    
    232,455
    
    
    
    194,947Deferred income taxes
    
    
    1,628,365
    
    
    
    2,197,329Total long-term liabilities
    
    
    1,860,820
    
    
    
    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 6/30/07 and
250,000 at 12/31/06; redemption value of $7,713,648 at 6/30/07 and
$13,979,342 at 12/31/06
    
    
    138
    
    
    
    250Common stock, $.001 par value, authorized 100,000,000 shares; issued and
outstanding  46,205,641 shares at 6/30/07 and 38,927,114
shares at 12/31/06
    
    
    46,206
    
    
    
    38,927Additional paid-in capital
    
    
    87,237,942
    
    
    
    59,174,874Accumulated deficit
    
    
    (2,360,435
    )
    
    
    (799,993
    )Accumulated other comprehensive income
    
    
    24,005
    
    
    
    3,673,61584,947,856
    
    
    
    62,087,673$
    89,870,555
    
    
    $
    69,136,397
   3




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##### Table of Contents



AMERICAN OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three months ended
    
    
    Six months endedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006REVENUESOil and gas sales
    
    $
    404,090
    
    
    $
    259,033
    
    
    $
    799,590
    
    
    $
    1,829,885Other revenues
    
    
    12,000
    
    
    
    1,530,000
    
    
    
    12,000
    
    
    
    1,530,000416,090
    
    
    
    1,789,033
    
    
    
    811,590
    
    
    
    3,359,885OPERATING EXPENSESLease operating
    
    
    149,587
    
    
    
    64,602
    
    
    
    252,736
    
    
    
    165,793General and administrative
    
    
    1,168,960
    
    
    
    758,749
    
    
    
    2,301,802
    
    
    
    1,831,319Depletion, depreciation and amortization
    
    
    237,739
    
    
    
    144,292
    
    
    
    522,068
    
    
    
    709,156Accretion of asset retirement obligation
    
    
    6,120
    
    
    
    808
    
    
    
    11,605
    
    
    
    1,7871,562,406
    
    
    
    968,451
    
    
    
    3,088,211
    
    
    
    2,708,055INCOME (LOSS) FROM OPERATIONS
    
    
    (1,146,316
    )
    
    
    820,582
    
    
    
    (2,276,621
    )
    
    
    651,830OTHER INCOMEGain on sale of oil and gas properties
    
    
    
    
    
    
    2,897,616
    
    
    
    
    
    
    
    7,159,470Gain on sale of securities
    
    
    108,059
    
    
    
    
    
    
    
    108,059
    
    
    
    Investment income
    
    
    298,214
    
    
    
    137,929
    
    
    
    365,570
    
    
    
    170,527406,273
    
    
    
    3,035,545
    
    
    
    473,629
    
    
    
    7,329,997INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (740,043
    )
    
    
    3,856,127
    
    
    
    (1,802,992
    )
    
    
    7,981,827Income tax expense-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense (reduction) -deferred
    
    
    (194,000
    )
    
    
    1,624,412
    
    
    
    (547,000
    )
    
    
    3,280,457NET INCOME (LOSS)
    
    
    (546,043
    )
    
    
    2,231,715
    
    
    
    (1,255,992
    )
    
    
    4,701,370Less dividends on preferred stock
    
    
    (149,040
    )
    
    
    (269,260
    )
    
    
    (304,450
    )
    
    
    (535,561
    )NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS
    
    $
    (695,083
    )
    
    $
    1,962,455
    
    
    $
    (1,560,442
    )
    
    $
    4,165,809NET INCOME (LOSS) PER COMMON SHARE:Basic
    
    $
    (.02
    )
    
    $
    .05
    
    
    $
    (.04
    )
    
    
    0.11Diluted
    
    $
    (.02
    )
    
    $
    .05
    
    
    $
    (.04
    )
    
    
    0.11Weighted average common shares outstanding:Basic
    
    
    44,973,682
    
    
    
    36,687,937
    
    
    
    42,455,047
    
    
    
    36,654,267Diluted
    
    
    44,973,682
    
    
    
    37,270,724
    
    
    
    42,455,047
    
    
    
    37,237,054
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AMERICAN OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 Six months ended June 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (1,255,992
    )
    
    $
    4,701,370Adjustments to reconcile net income to
net cash provided by operating activities:Share-based compensation expenses
    
    
    607,244
    
    
    
    921,377Depletion, depreciation and amortization
    
    
    522,068
    
    
    
    709,156Accretion of asset retirement obligations
    
    
    11,605
    
    
    
    1,787Gains on sales of oil & gas properties
    
    
    
    
    
    
    (7,159,470
    )Gains on sales of short-term investments
    
    
    (108,059
    )
    
    
    Deferred income taxes
    
    
    (547,000
    )
    
    
    3,280,457Service fee in the form of a convertible note
    
    
    
    
    
    
    (1,530,000
    )Changes in non-cash current assets and liabilities:Decrease (increase) in receivables
    
    
    (61,077
    )
    
    
    783,051Decrease (increase) in advances and prepaid expenses
    
    
    158,629
    
    
    
    (91,131
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    (240,361
    )
    
    
    310,066Net cash provided (used) by operating activities
    
    
    (912,943
    )
    
    
    1,926,663CASH FLOWS FROM INVESTING ACTIVITIESCash paid for oil and gas properties
    
    
    (5,024,262
    )
    
    
    (9,096,965
    )Proceeds from the sale of oil and gas properties
    
    
    777,461
    
    
    
    14,224,712Partial sale of investment in equity securities (Note 10)
    
    
    808,059
    
    
    
    Cash paid for office equipment
    
    
    (3,931
    )
    
    
    (119,112
    )Cash paid for other long-term assets
    
    
    0
    
    
    
    (10,000
    )Net cash provided (used) by investing activities
    
    
    (3,442,673
    )
    
    
    4,998,635CASH 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
    
    
    
    95,069Net cash provided by financing activities
    
    
    26,918,883
    
    
    
    95,069NET INCREASE IN CASH
    
    
    22,563,267
    
    
    
    7,020,367CASH, BEGINNING OF PERIOD
    
    
    7,488,474
    
    
    
    6,022,822CASH, END OF PERIOD
    
    $
    30,051,741
    
    
    $
    13,043,189SUPPLEMENTAL 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
    
    
    $
    Other comprehensive loss for decline in fair value of short-term
investment
    
    $
    (3,649,610
    )
    
    $
    Property sales proceeds in the form of a receivable
    
    $
    
    
    
    $
    3,699,312Share-based compensation expense
    
    $
    607,244
    
    
    $
    921,377Common stock issued for past services
    
    $
    
    
    
    $
    107,730Preferred dividends paid in shares of common stock
    
    $
    522,144
    
    
    $
    540,000Drilling prepayments applied to drilling costs
    
    $
    218,704
    
    
    $
    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)
    
    $
    
    
    
    $
    2,610,000Unrealized gain on investment in equity securities (Note 10)
    
    $
    
    
    
    $
    3,280,000Reduction in unrealized gains on investment in equity securities
(Note 10)
    
    $
    3,649,610
    
    
    $
    
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AMERICAN OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(UNAUDITED)
June 30, 2007
 Note 1  Company and Business
   
 Note 2  Basis of Presentation and Significant Accounting Policies
   USE OF ESTIMATES
 SIGNIFICANT ACCOUNTING POLICIES
    6




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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
  6/30/2007
    
    
    12/31/2006
    
    
    % changeProved reserves  oil (bbl)
    
    
    106,492
    
    
    
    91,850
    
    
    
    + 16
    %Proved reserves  gas (mcf)
    
    
    1,094,515
    
    
    
    809,847
    
    
    
    + 35
    %Standardized measure
    
    $
    7,200,000
    
    
    $
    4,598,000
    
    
    
    + 57
    %
  7




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Note 4  Property and Equipment
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization or
ceiling test
    
    $
    38,082,961Evaluated costs
    
    
    9,621,03547,703,996Office equipment, furniture and software
    
    
    299,41648,003,412Less accumulated depreciation, depletion and amortization
    
    
    (3,039,831
    )Property and equipment
    
    $
    44,963,581
   Six-month PeriodEnded June 30,2007
    
    
    2006Amortization of costs for evaluated oil and gas properties
    
    $
    400,818
    
    
    $
    608,639Amortization of Other Intangible Asset
    
    
    90,000
    
    
    
    90,000Depreciation of office equipment, furniture and software
    
    
    31,250
    
    
    
    10,517Total DD&A expense
    
    $
    522,068
    
    
    $
    709,156
  8




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Note 5  Asset Retirement Obligations
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Beginning asset retirement obligation
    
    $
    281,944
    
    
    $
    110,245
    
    
    $
    235,268
    
    
    $
    117,011Liabilities incurred
    
    
    16,140
    
    
    
    1,212
    
    
    
    61,148
    
    
    
    1,212Liabilities settled
    
    
    (22,898
    )
    
    
    
    
    
    
    (22,898
    )
    
    
    (7,745
    )Revisions in estimated liabilities
    
    
    (5,295
    )
    
    
    
    
    
    
    (9,112
    )
    
    
    Accretion
    
    
    6,120
    
    
    
    810
    
    
    
    11,605
    
    
    
    1,789Ending asset retirement obligation
    
    $
    276,011
    
    
    $
    112,267
    
    
    $
    276,011
    
    
    $
    112,267Current portion of obligation, end of
period
    
    $
    43,556
    
    
    $
    
    
    
    $
    43,556
    
    
    $
    
 Note 6  Income Taxes
 Accounting for Income
Taxes,
   Accounting for
Uncertainty in Income Taxes(FIN 48).
   9




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Note 7  Earnings per Share
    Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss) to common stock holders
    
    $
    (695,083
    )
    
    $
    1,962,455
    
    
    $
    (1,560,442
    )
    
    $
    4,165,809Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income adjusted for effects of dilution
    
    $
    (695,083
    )
    
    $
    1,962,455
    
    
    $
    (1,560,442
    )
    
    $
    4,165,809Basic Weighted Ave. Common Shares Outstanding
    
    
    44,973,682
    
    
    
    36,687,937
    
    
    
    42,455,047
    
    
    
    36,654,267Add dilutive effects of options and warrants
    
    
    
    
    
    
    582,787
    
    
    
    
    
    
    
    582,787Add dilutive effects of convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted Weighted Ave. Common Shares Outstanding
    
    
    44,973,682
    
    
    
    37,270,724
    
    
    
    42,455,047
    
    
    
    37,237,054Net income per common share  basic
    
    $
    (0.02
    )
    
    $
    0.05
    
    
    $
    (0.04
    )
    
    $
    0.11Net income per common share  diluted
    
    $
    (0.02
    )
    
    $
    0.05
    
    
    $
    (0.04
    )
    
    $
    0.11
 Note 8  Equity
 COMMON STOCK 
 
    
    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. Reflecting the $5.84 closing price on June 15th of our common stock, we
recorded deferred compensation of $584,000. Additional Paid-In Capital increased by
$583,900.
    
    Additional Paid-In Capital increased by an additional $278,372 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)
$5,839 in share-based compensation related to shares granted and vesting over time.
  10




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
    
    Additional Paid-In Capital decreased by $4,867 for earned compensation
relating to the aforementioned $584,000 in deferred compensation and by $17,955 in
recognition of previously deferred compensation relating to a prior award of common stock
held until associated services were performed.
  
    
    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.
    
    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.
    
    Additional Paid-In Capital 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, 20081,027,980
  11




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STOCK OPTIONS 
  Stock Options as of June 30, 2007
 Commitments and Contingencies
  Weighted Avg.Number of
    
    
    ExerciseShares
    
    
    PriceOptions outstanding  December 31, 2006 (985,498
exercisable)
    
    
    2,186,000
    
    
    $
    3.60Options granted in the six months ended June 30, 2007
    
    
    690,000
    
    
    $
    5.88Less options forfeited in the six months ended June 30, 2007
    
    
    (233,575
    )
    
    $
    4.98Less options exercised in the six months ended June 30, 2007
    
    
    (79,300
    )
    
    $
    4.65Options outstanding  June 30, 2007 (1,305,875 exercisable)
    
    
    2,563,125
    
    
    $
    4.06
  12




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##### Table of Contents



June 30, 2007
    
    June 30, 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
      WeightedaverageExercise
    
    
    
    
    
    
    
    
    
    
    remainingprice
    
    
    Number of shares
    
    
    contractualper share
    
    
    Outstanding
    
    
    Exercisable
    
    
    life (years)$
    1.25
    
    
    
    403,000
    
    
    
    403,000
    
    
    
    2.72.38
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    3.52.48
    
    
    
    80,000
    
    
    
    80,000
    
    
    
    3.53.66
    
    
    
    750,000
    
    
    
    375,000
    
    
    
    5.34.30
    
    
    
    9,000
    
    
    
    3,000
    
    
    
    5.44.57
    
    
    
    3,000
    
    
    
    3,000
    
    
    
    5.64.66
    
    
    
    60,000
    
    
    
    40,000
    
    
    
    4.84.95
    
    
    
    250,000
    
    
    
    90,000
    
    
    
    9.04.98
    
    
    
    200,000
    
    
    
    50,000
    
    
    
    6.35.15
    
    
    
    30,000
    
    
    
    0
    
    
    
    6.95.80
    
    
    
    75,000
    
    
    
    25,000
    
    
    
    5.25.84
    
    
    
    400,000
    
    
    
    80,000
    
    
    
    7.96.03
    
    
    
    203,125
    
    
    
    56,875
    
    
    
    5.42,563,125
    
    
    
    1,305,875Wgtd. Ave. remaining contractual life
    
    
    
    
    
    5.6 years
    
    4.7 yearsAggregate intrinsic value, June 30, 2007
    
    
    
    
    
    $
    6,976,984
    
    
    $
    4,770,785
  13




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##### Table of Contents



Note 9  Material Related Party Transactions
  Note 10  Short-term Investment
    Note 11  Investment Income from Cash Equivalents
  Note 12  Commitments and Contingencies
   14




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##### Table of Contents



North Finn Option
    
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     15




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##### Table of Contents



Overview
  Fetter Prospect  Powder River Basin, Wyoming
    West Douglas Prospect  Powder River Basin, Wyoming
   16




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##### Table of Contents



Krejci Oil Project Powder River Basin, Wyoming
   Goliath Project, Williston Basin, North Dakota
    Results of Operations
   17




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##### Table of Contents



The Quarter Ended June 30, 2007 Compared with the Quarter Ended June 30, 2006.
   Three months ended June 30,2007
    
    
    2006Oil sold (barrels)
    
    
    4,501
    
    
    
    3,874Average oil price
    
    $
    59.40
    
    
    $
    54.64Oil revenue
    
    $
    267,365
    
    
    $
    211,694Gas sold (mcf)
    
    
    23,695
    
    
    
    6,753Average gas price
    
    $
    5.77
    
    
    $
    7.01Gas revenue
    
    $
    136,725
    
    
    $
    47,339Total oil and gas revenues
    
    $
    404,090
    
    
    $
    259,033Less lease operating expenses
    
    
    (149,587
    )
    
    
    (64,602
    )Less oil & gas amortization expense
    
    
    (177,000
    )
    
    
    (93,719
    )Less accretion of asset retirement obligation
    
    
    (6,120
    )
    
    
    (808
    )Producing revenues less direct expenses
    
    
    71,383
    
    
    
    99,904Less depreciation of office facilities
    
    
    (15,739
    )
    
    
    (5,573
    )Less amortization of other intangible asset
    
    
    (45,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (1,168,960
    )
    
    
    (758,749
    )Add other revenue
    
    
    12,000
    
    
    
    1,530,000Income (loss) from operations
    
    $
    (1,146,316
    )
    
    $
    820,582Total barrels of oil equivalent (boe) sold
    
    
    8,450
    
    
    
    5,000Lease operating expense per boe sold
    
    $
    17.70
    
    
    $
    12.92Amortization expense per boe sold
    
    $
    20.95
    
    
    $
    18.75
    18




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##### Table of Contents



The Six-month Period ended June 30, 2007 Compared with the Six-month Period ended June 30, 2006
   Six months ended June 30,2007
    
    
    2006Oil sold (barrels)
    
    
    8,835
    
    
    
    28,807Average oil price
    
    $
    55.47
    
    
    $
    54.92Oil revenue
    
    $
    490,094
    
    
    $
    1,582,109Gas sold (mcf)
    
    
    50,715
    
    
    
    29,790Average gas price
    
    $
    6.10
    
    
    $
    8.32Gas revenue
    
    $
    309,496
    
    
    $
    247,776Total oil and gas revenues
    
    $
    799,590
    
    
    $
    1,829,885Less lease operating expenses
    
    
    (252,736
    )
    
    
    (165,793
    )Less oil & gas amortization expense
    
    
    (400,818
    )
    
    
    (608,639
    )Less accretion of asset retirement obligation
    
    
    (11,605
    )
    
    
    (1,787
    )Producing revenues less direct expenses
    
    
    134,431
    
    
    
    1,053,666Less depreciation of office facilities
    
    
    (31,250
    )
    
    
    (10,517
    )Less amortization of other intangible asset
    
    
    (90,000
    )
    
    
    (90,000
    )Less general and administrative expenses
    
    
    (2,301,802
    )
    
    
    (1,831,319
    )Add other revenue
    
    
    12,000
    
    
    
    1,530,000Income (loss) from operations
    
    
    (2,276,621
    )
    
    $
    651,830Total barrels of oil equivalent (boe) sold
    
    
    17,287
    
    
    
    33,772Lease operating expense per boe sold
    
    $
    14.62
    
    
    $
    4.91Amortization expense per boe sold
    
    $
    23.19
    
    
    $
    18.02
    19




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##### Table of Contents



Liquidity and Capital Resources
     Net Cash Provided By Operating Activities
 Net Cash Provided By or Used In Investing Activities
 Net Cash Provided By Financing Activities
  20




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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Commodity Price Risk
  Operating Cost Risk
  
 Item 4. CONTROLS AND PROCEDURES
     21




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Shares VotedNominee
    
    For
    
    
    Against
    
    
    AbstainPatrick D. OBrien
    
    
    33,260,696
    
    
    
    283,589
    
    
    
    0Andrew P. Calerich
    
    
    33,260,608
    
    
    
    283,677
    
    
    
    0M.S. (Moni) Minhas
    
    
    32,395,630
    
    
    
    1,148,655
    
    
    
    0Nick DeMare
    
    
    32,764,367
    
    
    
    779,918
    
    
    
    0Jon R. Whitney
    
    
    33,268,073
    
    
    
    276,212
    
    
    
    0
  
 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
  22




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##### Table of Contents



SIGNATURES
  Signatures
    
    Title
    
    Date/s/ Patrick D. OBrien

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

Joseph B. Feiten

    
    Chief Financial Officer
    
    August 7, 2007
  23




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##### Table of Contents



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
  24