UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM 10-K/A



S Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934

For the Fiscal Year Ended December 31,
2010

£ Transition Report Pursuant to Section 13or 15(d) of The Securities
Exchange Act of 1934



Commission File Number: 0-52718



OSAGE EXPLORATION
& DEVELOPMENT, INC.

(Exact name of registrant as specified in
its charter)





|Delaware                                                       | 26-0421736                          
|-------------------------------------------------------------- | ------------------------------------
|(State of other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)





2445 Fifth Avenue, Suite 310, San Diego,
California 92101

(Address of principal executive offices)
(Zip Code)



Registrant’s telephone no.:  (619)
677-3956



Securities registered pursuant to Section 12(b) of the Exchange
Act:   None



Securities registered pursuant to Section 12(g) of the Exchange
Act:   Common Stock, par value $0.0001



Indicate by check mark is the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes £ No S



Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No S



Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Security Exchange Act of 1934during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes S No £



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K of any amendment to this
Form 10-K. S



Indicate by check mark whether registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions
of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):



Large Accelerated
Filer £  Accelerated filer £Non-accelerated
file £ Smaller reporting company S



Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes £ No S



The aggregate market
value of the issuer’s Common Stock held by non-affiliates of the registrant on March 15, 2011 was approximately$1,880,980based on the closing price of $0.09 as reported on the NASD’s OTC Electronic Bulletin Board system.



As of March 15, 2010, there were 46,649,775 shares of Osage Exploration
and Development, Inc., Common Stock, par value $0.0001, outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



A description of "Documents Incorporated by Reference"
is contained in Part III, Item 13.

Transitional Small Business Disclosure Format.
Yes £ No S











TABLE OF CONTENTS



|                                                       |                                                                                                              | Page
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ----
|PART I                                                
|                                                       |                                                                                                              |     
|Item 1.                                                | Business                                                                                                     | 1   
|                                                       |                                                                                                              |     
|Item 1A.                                               | Risk Factors                                                                                                 | 5   
|                                                       |                                                                                                              |     
|Item 1B.                                               | Unresolved Staff Comments                                                                                    | 8   
|                                                       |                                                                                                              |     
|Item 2.                                                | Properties                                                                                                   | 8   
|                                                       |                                                                                                              |     
|Item 3.                                                | Legal Proceedings                                                                                            | 10  
|                                                       |                                                                                                              |     
|Item 4.                                                | Removed and Reserved                                                                                         | 10  
|                                                       |                                                                                                              |     
|PART II                                               
|                                                       |                                                                                                              |     
|Item 5.                                                | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 11  
|                                                       |                                                                                                              |     
|Item 6.                                                | Selected Financial Data                                                                                      | 11  
|                                                       |                                                                                                              |     
|Item 7.                                                | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 12  
|                                                       |                                                                                                              |     
|Item 7A.                                               | Quantitative and Qualitative Disclosures About Market Risk                                                   | 17  
|                                                       |                                                                                                              |     
|Item 8.                                                | Financial Statements and Supplementary Data                                                                  | 19  
|                                                       |                                                                                                              |     
|Item 9.                                                | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         | 19  
|                                                       |                                                                                                              |     
|Item 9A.                                               | Controls and Procedures                                                                                      | 19  
|                                                       |                                                                                                              |     
|Item 9B.                                               | Other Information                                                                                            | 20  
|                                                       |                                                                                                              |     
|PART III                                              
|                                                       |                                                                                                              |     
|Item 10.                                               | Directors, Executive Officers and Corporate Governance                                                       | 20  
|                                                       |                                                                                                              |     
|Item 11.                                               | Executive Compensation                                                                                       | 22  
|                                                       |                                                                                                              |     
|Item 12.                                               | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 24  
|                                                       |                                                                                                              |     
|Item 13.                                               | Certain Relationships and Related Transactions, and Director Independence                                    | 25  
|                                                       |                                                                                                              |     
|Item 14.                                               | Principal Accounting Fees and Services                                                                       | 26  
|                                                       |                                                                                                              |     
|PART IV                                               
|                                                       |                                                                                                              |     
|Item 15.                                               | Exhibits, Financial Statement Schedules                                                                      | 27  
|                                                       |                                                                                                              |     
|Signatures                                             | 29                                                                                                          
|                                                       |                                                                                                              |     
|Financial Statements and Financial Statement Schedules | F-1                                                                                                         











Explanatory Note



Osage Exploration and Development, Inc. (referred to herein, as,
“Osage,” the “Company,” “we,” “us,” and “our”) is filing this Amendment
(this “Amendment”) to our Form 10-K for the fiscal year ended December 31, 2010 (“Form 10-k”) which was
originally filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2011.



This Amendment is being filed to include further disclosure regarding
the Company’s properties, changes to internal controls over financial reporting and the supplemental information about oil
and gas producing activities (unaudited). In addition, the Company, as required by Rule 12b-15 under the Securities Exchange Act
of 1934, as amended, and in response to a comment from the Staff of the SEC, revised certifications by our principal executive
officer and principal financial officer under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, respectively, as Exhibits
31.1 and 31.2.



Except as stated herein, this Amendment does not change our previously
reported financial statements or the other financial disclosures contained in the Form 10-K. Except as stated herein, this Amendment
does not reflect events occurring after the filing of the Form 10-K and no attempt has been made in this Amendment to modify or
update other disclosures as presented in the Form 10-K.











Cautionary Statement



IN ADDITION TO HISTORICAL INFORMATION,
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE “SAFE HARBOR” PROVISIONS THEREOF. THEREFORE, THE COMPANY IS INCLUDING
THIS STATEMENT FOR THE EXPRESS PURPOSE OF AVAILING ITSELF OF THE PROTECTIONS OF SUCH SAFE HARBOR WITH RESPECT TO ALL OF SUCH FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS REPORT REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS
AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED
HEREIN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN THIS REPORT, THE
WORDS “ANTICIPATES,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FUTURE” AND
SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED TO CONSIDER THE SPECIFIC RISK FACTORS DESCRIBED
BELOW AND NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT
MAY ARISE AFTER THE DATE HEREOF.



Item 1.Business



Overview



Osage Exploration and Development, Inc., (“Osage” or
the “Company”) is an oil and natural gas exploration and production company with proved reserves and existing production
in the country of Colombia and the state of Oklahoma. We are headquartered in San Diego, California with field offices in Oklahoma
City, Oklahoma and Bogota, Colombia.



Our operations in Colombia accounted for approximately 95% and 97%
of our total revenues in 2010 and 2009, respectively.



Mississippian



In 2010, the Company began to acquire
oil and gas leases in Logan County, Oklahoma targeting the Mississippian formation. The Mississippian formation is located on the
Anadarko Shelf in northern Oklahoma and south-central Kansas. The top of this expansive carbonate hydrocarbon system is encountered
between 4,000 and 6,000 feet and lies stratigraphically between the Pennsylvanian-aged Morrow Sand and the Devonian-aged Woodford
Shale formations. The Mississippian formation may reach 1,000 feet in gross thickness and the targeted porosity zone is between
50 and 100 feet in thickness. The formation’s geology is well understood as a result of the thousands of vertical wells drilled
and produced there since the 1940s. Beginning in 2007, the application of horizontal cased-hole drilling and multi-stage hydraulic
fracturing treatments have demonstrated the potential for extracting significant additional quantities of oil and natural gas from
the formation. As of December 31, 2010, the Company has acquired oil and gas leases covering approximately 5,364 net acres. The
Company intends to focus most of its efforts and resources in 2011 on acquiring additional leases and attempting to find a partner
in order to develop this acreage. We have yet to drill any wells and, therefore, have no basis to estimate whether such properties
will produce oil and natural gas in sufficient quantities as to be profitable or at all.



Cimarrona



On April 8, 2008, we entered into a membership interest purchase
agreement (the “Purchase Agreement”) with Sunstone Corporation (“Sunstone”) pursuant to which we acquired
from Sunstone 100% of the membership interests in Cimarrona Limited Liability Company (“Cimarrona LLC”), an Oklahoma
limited liability company. Cimarrona LLC owns a 9.4% interest in certain oil and gas assets in the Guaduas field, located in the
Dindal and Rio Seco Blocks that consist of twenty-one wells, of which seven are currently producing, that covers 30,665 acres in
the Middle Magdalena Valley in Colombia, as well as a pipeline with a current capacity of approximately 30,000 barrels of oil per
day. The Purchase Agreement was effective April 1, 2008.



1







The purchase price consisted of 2,750,000 shares of our common stock
and a warrant to purchase 1,125,000 shares of common stock exercisable at $1.25 per share, expiring April 8, 2013. In addition,
we issued 50,000 shares of common stock to a financial advisor and $22,500 as a finder’s fee. The total purchase price attributable
to the Cimarrona acquisition was $2,090,345.



The Cimarrona property, but not the
pipeline, is subject to an Ecopetrol Association Contract (the “Association Contract”) whereby we pay Ecopetrol S.A.
(“Ecopetrol”) royalties of 20% of the oil produced. The royalty is paid in oil. In addition to the royalty, according
to the Association Contract, Ecopetrol may, for no consideration, become a 50% partner, once an audit of revenues and expenses
indicate that the partners in the Association Contract have a received a 200% reimbursement of all historical costs to develop
and operate the Guaduas field. We believe Ecopetrol could become a 50% partner in 2011 which would effectively reduce the cash
flows generated by the property by 50%. In addition, in 2022, the Association Contract with Ecopetrol terminates, at which time
we will have no economic interest remaining in this property. The property and the pipeline are both operated by Pacific Rubiales
Energy Corp. (“Pacific”), which owns 90.6% of the Guaduas field. Pipeline revenues generated from Cimarrona primarily
relate to transportation costs charged to third party oil producers, including Pacific. In 2010 and 2009, Pacific reimbursed us
$154,289 and $797,483, respectively for capital expenditures related to certain disputes regarding the pipeline. In 2009, Pacific
reduced the amount we owed them under our joint operating agreement by $799,007 relating to certain disputes we had regarding a
blending facility that they built in conjunction with the pipeline. These amounts were originally included as capitalized costs
of the pipeline. No gain or loss was recognized from these transactions.



Rosablanca



In June 2007, we entered into an agreement (the “Agreement”)
with Gold Oil, Plc (“Gold”) and Empesa Petrolera de Servicios y Asesorias, S.A. (“Empesa), whereby we farmed-in
to the approximately 165 square mile Rosablanca concession in Colombia awarded by the Agencia Nacional de Hidrocarburos (“ANH”)
to Gold in June, 2007. Under the Agreement, we were considered the operators of the concession and were obligated to pay all costs
associated with drilling and testing of the first well on the Rosablanca concession. Revenues generated from the first well were
to be allocated 50% to us, 40% to Gold and 10% to Empesa. In March 2009, we entered into an agreement (the “LEC Agreement”)
with Lewis Energy Corporation (“LEC”) whereby LEC agreed to provide all of the capital required to drill the first
well, up to $3,500,000 and become operator of Rosablanca in return for a 50% assignment of our 50% operating interest in the Rosablanca
concession. The LEC Agreement also provided that LEC was entitled to receive an amount equal to two times its investment in the
first well before Osage receives any cash flow from the first well. The transaction was recorded in accordance with paragraph 47(c)
SFAS 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies, ” as codified by FASB ASC section
932-360-55. Furthermore, as part of the LEC Agreement, we issued 5,250,000 shares of our Common Stock to an affiliate of LEC. As
a result of the LEC transaction, revenues and investments on all future wells in Rosablanca were to be allocated 40% to Gold, 25%
to LEC, 25% to us and 10% to Empesa. We recognized no gain or loss on the assignment of our interest. On March 23, 2009, we announced
we completed testing on the first well without finding producible hydrocarbons in any of the zones evaluated and in September 2009,
we entered into a termination agreement (the “Termination Agreement”) with Gold, EMPESA and Lewis, whereby we and LEC
withdrew from the Rosablanca concession. Therefore, we wrote off our entire investment in the Rosablanca concession as of December
31, 2009.



In August 2007, we (i) paid $1,200,000 to Gold representing funds
Gold previously issued to a trust account established by the ANH to drill the first well for the Rosablanaca concession and (ii)
issued a letter of credit of $144,000 for the benefit of Gold’s bank in Colombia representing the guarantee required by the
ANH. We were obligated to commence drilling the first well by December 26, 2008, which we did. Under the terms of the concession
agreement with the ANH, we had the right to explore for up to six phases, with each phase lasting twelve months. We performed the
first phase which was to drill the first well. Each phase required us to fund a new trust account and issue a new letter of credit,
as well as perform certain tasks. Phase 2 required an establishment of a trust account for $790,000, of which our share was $197,500,
and an issuance of a letter of credit of $110,000, of which our share was $27,500 and obligated us to perform certain seismic work.
In the first quarter of 2009, we funded both the trust account and the letter of credit. As we withdrew from the concession in
2009, we wrote off all of the remaining balance in the trust account as of December 31, 2009.



2







Osage, Oklahoma



In 2005 we purchased 100% of the working interest and became the
operator in certain producing oil and natural gas leases located in Osage County, Oklahoma, which property consists of twenty three
wells, ten of which are producing wells, on 480 acres from Conquest Exploration Company, LLC and Esso Oil Company of Oklahoma (“Esso”).
The purchase price was $103,177.



Background



We were organized September 9, 2004 as Osage Energy Company, LLC,
an Oklahoma limited liability company. On April 24, 2006, we merged with a non-reporting Nevada corporation trading on the Pink
Sheets, Kachina Gold Corporation, which was the entity that survived the merger. The merger was consummated through the issuance
of 10,000,000 shares of our common stock. The financial records of the Company prior to merger are those of Osage Energy Company,
LLC.



The Nevada corporation was incorporated under the laws of Canada,
on February 24, 2003, as First Mediterranean Gold Resources, Inc. The domicile of the Company was changed to the State of Nevada,
on May 11, 2004. On May 24, 2004, the name of the Company was changed to Advantage Opportunity Corp.



On March 4, 2005, the Company changed its name to Kachina Gold Corporation.
On April 24, 2006 Kachina Gold Corporation merged with Osage Energy Company, LLC, and on May 15, 2006 changed its name to Osage
Energy Corporation. On July 2, 2007, the domicile of the Company was changed to Delaware and in connection therewith, the name
of the Company was changed to Osage Exploration and Development, Inc. On February 27, 2008, our stock began trading on the NASDAQ
OTC Bulletin Board market under the ticker “OEDV.OB”



Our principal office is located at 2445 Fifth Avenue, Suite 310
San Diego, California 92101. Our phone number is (619) 677-3956.



Distribution Methods



We currently generate oil sales from our production operations in
Colombia and in the state of Oklahoma and pipeline revenues from our Cimarrona property in Colombia. All of the oil we produce
in Oklahoma is sold to Sunoco, Inc. (“Sunoco”). We do not have a written agreement with Sunoco. Sunoco picks up oil
from our tanks and pays us according to market prices at the time of pick up. There is significant demand for oil and there are
several companies in our area that purchase oil from small oil producers.



Currently, we only sell oil in Colombia from the Guaduas field,
where we sell all of our oil production to Hocol, S.A. (“Hocol”). We believe that, in the event Hocol discontinued
oil purchases, we will be able to replace this customer with other customers who would purchase the oil at terms standard in the
industry. All of our pipeline revenues are generated from sales volumes attributable to Pacific, the operator of the Cimarrona
property. For 2010, Hocol, Pacific and Sunoco accounted for approximately 75%, 20% and 5%, respectively, of total revenues. For
2009, Pacific, Hocol and Sunoco accounted for approximately 57%, 40% and 3%, respectively, of total revenues.



We presently have no sales of natural gas. Should we decide to sell
our production of natural gas, we will seek to enter into distribution agreements that would provide for us to tap into the distribution
line of a gas distribution company, and we would be paid for our gas at the market price at the time of delivery less any transportation
charge from the gas transmission company. These charges can range widely from 5% to 30% or more of the market value of the gas
depending on the availability of competition and other factors.



3





Research and Development



We have not allocated funds to conducting research and development
activities, nor do we anticipate allocating funds to research and development in the future.



Patents, Trademarks, Royalties, Etc.



We have no patents, trademarks, licenses, concessions, or labor
contracts. In our Osage property in Oklahoma, we pay royalties of 18.75% of oil and gas sales, net of taxes, to the Osage Nation.
If our production increases to more than 100 barrels of oil per producing well per day, the royalty will increase to 20.0%. The
leases do not expire, and royalties are owed as long as there is production on the property. In Colombia, pursuant to the Association
Contract with Ecopetrol, we pay royalties of 20.0% of oil produced to Ecopetrol. In our Mississippian leases in Oklahoma, the royalty
rates range from 12.5% to 20.0%. Most of the Mississippian leases require us to drill a well on the lease within three years of
entering into a lease. If we do not drill during that time, and do not have an option to extend the lease, we will lose that lease.



Government Approvals



We are required to get approval from the Oklahoma Corporation Commission
and Colombian governmental agencies before any work can begin on any well in Oklahoma and Colombia, respectively, and before production
can be sold. We have all of the required permits on the properties currently in operation.



Existing or Probable Governmental Regulations



We currently are active in the country of Colombia and the state
of Oklahoma. The development and operation of oil and gas properties is highly regulated by states and/or foreign governments.
In some areas of exploration and production, the United States government or a foreign governmental agency regulates the industry.



Regulations, whether state or federal or international, control
numerous aspects of drilling and operating oil and gas wells, including the care of the environment, the safety of the workers
and the public, and the relations with the owners and occupiers of the surface lands within or near the leasehold acreage. The
effect of these regulations, whether state or federal or international, is invariably to increase the cost of operations.



The costs of complying with state regulations include a permit for
drilling a well before beginning a project. Other compliance matters have to do with keeping the property free of oil spills and
the plugging of wells when they no longer produce. If oil spills are not cleaned up on a timely basis fines can range from a few
dollars to as high as several thousand dollars. We utilize consultants and independent contractors to visit and monitor our properties
in Oklahoma on a regular basis to prevent mishaps and ensure prompt attention and, if necessary, appropriate correction and remedial
activity. The other significant cost of compliance with state regulations is the plugging of wells after their useful life. In
most instances, there is pumping equipment and pipe which can be salvaged to offset some if not all of that cost. Plugging a well
consists of pumping cement into the well bore sufficient to prevent any oil and gas zone from ever leaking and contaminating the
fresh water supply.



Costs and Effects of Compliance with Environmental Laws



There is a cost in complying with environmental laws that is associated
with each well that is drilled or operated, which cost is added to the cost of the operation. Each well will have an additional
cost associated with plugging and abandoning the well when it is no longer commercially viable. The estimated costs of dismantlement
and abandonment of depleted wells on our Oklahoma property are estimated to be approximately $92,000. As of December 31, 2010,
we have not incurred any dismantlement and abandonment costs. However, we believe that the salvage value of the equipment on the
wells will be sufficient in amount to offset some of such costs.



4







Employees



We currently have two full-time executive employees: Kim Bradford,
President, Chief Executive Officer and Chief Financial Officer and Greg Franklin, Chief Geologist. We utilize third parties to
provide certain operational, technical, accounting, finance and administrative services. As production levels increase, we may
need to hire additional personnel or expand the use of third parties.



Facilities



We lease 1,386 square feet of modern office space in San Diego,
California as our corporate headquarters pursuant to a 36 month lease from February 2008. We paid $3,682 per month for the first
12 months, increasing 3.5% in years 2 and 3. In addition, we are responsible for any increases in building operating expenses beyond
2008 base year operating expenses. In February 2011, we entered into a new 36 months lease on the same facility at $3,188 per month
for the first 12 months, increasing 3.5% in years 2 and 3.



We lease approximately 1,000 square feet of modern office space
in Oklahoma City, Oklahoma consisting of a large conference room, three offices, a drafting room and a storage room. The lease
is based on a verbal agreement with a third party on a month-to-month basis for $900.



Available Information



Our Internet website address is www.osageexploration.com.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports
filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) are available free of charge through our Company’s website as soon as reasonably practical after those reports
are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).



Item 1A. Risk Factors



Cautionary Note on Forward Looking
Statements



In addition to the other information
in this annual report the factors listed below should be considered in evaluating our business and prospects. This annual report
contains a number of forward-looking statements that reflect our current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties, including those discussed below and elsewhere
herein, that could cause actual results to differ materially from historical results or those anticipated. In this report, the
words “anticipates,” “believes,” “expects,” “intends,” “future” and
similar expressions identify forward-looking statements. Readers are cautioned to consider the specific factors described below
and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We
undertake no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise
after the date hereof.



Risks Relating to Our Business



We have a history of losses and may incur future losses.



We have incurred significant operating
losses in prior years and at December 31, 2010 had an accumulated deficit of approximately $10.09 million. We had comprehensive
losses of approximately $1.52 million and $2.19 million in 2010 and 2009, respectively. To date, we have not achieved profitability
and, given the level of operating expenditures and the uncertainty of revenues and margins, we may continue to incur losses and
negative cash flows in future periods. The failure to obtain sufficient revenues and margins to support operating expenses could
harm our business.



We have limited operating capital.



In order to continue growth and to fund our expansion plans, we
will require additional financing. The amount of capital available to us is limited, and may not be sufficient to enable us to
fully execute our growth plans without additional fund raising. Additional financing may be required to meet our objectives and
provide more working capital for expanding our development and marketing capabilities and to achieve our ultimate plan of expansion
and full scale of operations.  There is no assurance we will be able to obtain such financing on attractive terms, if at all.



5









We do not intend to pay dividends to our stockholders.



We do not currently intend to pay cash dividends on our common stock
and do not anticipate paying any dividends at any time in the foreseeable future. At present, we will follow a policy of retaining
all of our earnings, if any, to finance development and expansion of our business.



Our officers and directors have limited liability, and we
are required in certain instances to indemnify our officers and directors for breaches of their fiduciary duties.



We have adopted provisions in our Certificate of Incorporation and
Bylaws which limit the liability of our officers and directors and provide for indemnification by us of our officers and directors
to the full extent permitted by Delaware corporate law. Our Certificate of Incorporation generally provide that our officers and
directors shall have no personal liability to us or our stockholders for monetary damages for breaches of their fiduciary duties
as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions,
or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit our stockholders’
ability to hold officers and directors liable for breaches of fiduciary duty, and may require us to indemnify our officers and
directors.



We face great competition.



We compete against many other energy companies, some of which have
considerably greater resources and abilities. These competitors may have greater marketing and sales capacity, established distribution
networks, significant goodwill and global name recognition.



Our success depends to a significant degree upon the involvement
of our management, who are in charge of our strategic planning and operations. We may need to attract and retain additional talented
individuals in order to carry out our business objectives.  The competition for such persons could be intense and there are
no assurances that these individuals will be available to us.



Our business is subject to extensive regulation.



Many of our activities are subject to Colombian, federal, state
and/or local regulation, and as these rules are subject to constant change or amendment, there can be no assurance that our operations
will not be adversely affected by new or different government regulations, laws or court decisions applicable to our operations.



Government regulation and liability for environmental matters
may adversely affect our business and results of operations.



Crude oil and natural gas operations are subject to extensive international,
federal, state and local government regulations, which may be changed from time to time. Matters subject to regulation include
discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and
pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production
by restricting the rate of flow of crude oil and natural gas wells below actual production capacity in order to conserve supplies
of crude oil and natural gas. There are international, federal, state and local laws and regulations primarily relating to protection
of human health and the environment applicable to the development, production, handling, storage, transportation and disposal of
crude oil and natural gas, byproducts thereof and other substances and materials produced or used in connection with crude oil
and natural gas operations. In addition, we may inherit liability for environmental damages caused by previous owners of property
we purchase or lease. As a result, we may incur substantial liabilities to third parties or governmental entities. We are also
subject to changing and extensive tax laws, the effects of which cannot be predicted. The implementation of new, or the modification
of existing, laws or regulations could have a material adverse effect on us.



6







The reserves we report in our SEC filings are estimates and
may prove to be inaccurate.



There are numerous uncertainties inherent in estimating crude oil
and natural gas reserves and their estimated values. The reserves we report in our filings with the SEC are only estimates and
such estimates may prove to be inaccurate because of these uncertainties. Reservoir engineering is a subjective and inexact process
of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. Estimates of economically
recoverable crude oil and natural gas reserves depend upon a number of variable factors, such as historical production from the
area compared with production from other producing areas and assumptions concerning effects of regulations by governmental agencies,
future crude oil and natural gas prices, future operating costs, severance and excise taxes, development costs and work-over and
remedial costs. Some or all of these assumptions may in fact vary considerably from actual results. For these reasons, estimates
of the economically recoverable quantities of crude oil and natural gas attributable to any particular group of properties, classifications
of such reserves based on risk of recovery, and estimates of the future net cash flows expected there from prepared by different
engineers or by the same engineers but at different times may vary substantially. Accordingly, reserve estimates may be subject
to downward or upward adjustment. Actual production, revenue and expenditures with respect to our reserves will likely vary from
estimates, and such variances may be material.



Crude oil prices are highly volatile in general and low prices
will negatively affect our financial results.



Our revenues, operating results, profitability, cash flow, future
rate of growth and ability to borrow funds or obtain additional capital are substantially dependent upon prevailing prices of crude
oil. Lower crude oil and natural gas prices also may reduce the amount of crude oil and natural gas that we can produce economically.
Historically, the markets for crude oil and natural gas have been very volatile, and such markets are likely to continue to be
volatile in the future. Prices for crude oil and natural gas are subject to wide fluctuation in response to relatively minor changes
in the supply of and demand for crude oil and natural gas, market uncertainty and a variety of additional factors that are beyond
our control, including: worldwide and domestic supplies of crude oil and natural gas; the level of consumer product demand; weather
conditions; domestic and foreign governmental regulations; the price and availability of alternative fuels; political instability
or armed conflict in oil producing regions; the price and level of foreign imports; and overall domestic and global economic conditions.



At our Osage property in Oklahoma, we sold oil at $68.61 to $85.25
per barrel in 2010 compared to $32.35 to $73.66 per barrel in 2009. In our Cimarrona property in Colombia, we sold oil at $63.32
to $81.04 per barrel in 2010 compared to $28.06 to $74.40 per barrel in 2009.



Risks Relating to Trading in Our
Common Stock



The market price for our common stock may be volatile, and
you may not be able to sell our stock at a favorable price or at all.



Many factors could cause the market price of our common stock to
rise and fall, including: actual or anticipated variations in our quarterly results of operations; changes in market valuations
of companies in our industry; changes in expectations of future financial performance; fluctuations in stock market prices and
volumes; issuances of dilutive common stock or other securities in the future; the addition or departure of key personnel; and
the increase or decline in the price of oil and natural gas. It is possible that the proceeds from sales of our common stock may
not equal or exceed the prices you paid for it plus the costs and fees of making the sales.



7







Substantial sales of our common stock, or the perception that
such sales might occur, could depress the market price of our common stock.



We cannot predict whether future issuances of our common stock or
resales in the open market by current stockholders will decrease the market price of our common stock. The impact of any such issuances
or resales of our common stock on our market price may be increased as a result of the fact that our common stock is thinly, or
infrequently, traded.  The exercise of any options, warrants or the vesting of any restricted stock that we may grant to directors,
officers, employees and consultants in the future, the issuance of common stock in connection with acquisitions and other issuances
of our common stock could have an adverse effect on the market price of our common stock. In addition, future issuances of our
common stock may be dilutive to existing stockholders. Any sales of substantial amounts of our common stock in the public market,
or the perception that such sales might occur, could lower the market price of our common stock.



Our common stock is considered to be a “penny stock”
security under the Exchange Act rules, which may limit the marketability of our securities.



Our securities are considered low-priced or "designated"
securities under rules promulgated under the Exchange Act. Under these rules, broker/dealers participating in transactions in low-priced
securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker/dealers’
duties, the customer's rights and remedies, certain market and other information, and make a suitability determination approving
the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives.
Broker/dealers must also disclose these restrictions in writing to the customer and obtain specific written consent of the customer,
and provide monthly account statements to the customer. The likely effect of these restrictions is a decrease in the willingness
of broker/dealers to make a market in the stock, decreased liquidity of the stock and increased transaction costs for sales and
purchases of the stock as compared to other securities.



Item 1B. Unresolved Staff Comments



None



Item 2.Properties



The principal assets of the Company consist of proved and unproved
oil and gas properties, a pipeline and oil and gas production related equipment. Our oil and gas properties are located in the
country of Colombia and in the state of Oklahoma. Our pipeline is located in Colombia.



Developed oil and gas properties are those on which sufficient wells
have been drilled to economically recover the estimated reserves calculated for the property. Undeveloped properties do not presently
have sufficient wells to recover the estimated reserves.



There are numerous uncertainties inherent in estimating quantities
of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors
beyond the control of the Company and the operators. The reserve data set forth in Supplemental Information to Consolidated Financial
Statements represent only estimates. Reserve engineering is a subjective process of estimating underground accumulations of crude
oil and condensate, natural gas liquids and natural gas that cannot be measured in an exact manner. The accuracy of any reserve
estimate is a function of the amount and quality of available data and of engineering and geological interpretation and judgment.
As a result, estimates of different engineers normally vary. In addition, results of drilling, testing and production subsequent
to the date of an estimate may justify revision of such estimate upward or downward. Accordingly, reserve estimates are often different
from the quantities ultimately recovered. The meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions
upon which they were based. .



8







Management maintains internal controls designed to provide reasonable
assurance that the estimates of proved reserves are computed and reported in accordance with rules and regulations as promulgated
by the SEC. The Company retained Reddy Petroleum Company to prepare estimates of our oil and gas reserves in our Osage County,
Oklahoma property. Management is responsible for providing the following information related to our oil and gas properties to the
firm: working and net revenue interests, historical production rates, current operating and future development costs, and geoscience,
engineering and other information. Greg Franklin, our Chief Geologist, reviews the final reserve estimate for completeness and
reasonableness and, if necessary, discusses the process used and findings with the designated technical person at Reddy Petroleum
Company. Our Chief Geologist has 25 years of oil and gas experience and is a registered professional engineer. The technical person
primarily responsible for audit of our reserve estimates at Reddy Petroleum Company meets the requirements regarding qualifications,
independence, objectivity, and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and
Gas Reserves Information promulgated by the Society of Petroleum Engineers. Reddy Petroleum Company is an independent firm of petroleum
engineers, geologists, geophysicists, and petro physicists; they do not own an interest in our properties and are not employed
on a contingent fee basis. Reserve estimates are imprecise and subjective and may change at any time as additional information
becomes available. Furthermore, estimates of oil and gas reserves are projections based on engineering data. There are uncertainties
inherent in the interpretation of this data as well as the projection of future rates of production. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering and geological interpretation and judgment.



Pacific, the operator and owner of 90.6% of the Guaduas field in
Columbia, retained Petrotech Engineering Ltd to prepare estimates of oil and gas reserves in the Cimarrona property. Management
of Pacific provided information relating to working and net revenue interests, historical production rates, current operating and
future development costs, and geoscience, engineering and other information. Management of Pacific reviews the final reserve estimate
for completeness and reasonableness and, if necessary, discusses the process used and findings with the designated technical person
at Petrotech Engineering Ltd. The report provided by Petrotech is for Pacific’s 90.6% ownership of the field.



The Company's estimated future net recoverable oil and gas reserves
from proved reserves, both developed and undeveloped properties, were assembled by independent petroleum engineers, Petrotech Engineering
Ltd for the Cimarrona property in Colombia as of December 31, 2010 and December 31, 2009, and Reddy Petroleum Company for the Osage
property in Oklahoma as of December 31, 2010 and December 31, 2009, respectively, and are as follows:





| |                   |  | Crude Oil (BBLs) |         | Natural Gas (MCF)
| | ----------------- |  | ---------------- | ------- | -----------------
| |                   |  | Colombia         |         | United States    
| | December 31, 2010 |  |                  | 272,600 |                  
| | December 31, 2009 |  |                  | 328,154 |                  





Using year-end 2010 oil and gas prices and lease operating expenses,
the estimated value of future net revenues to be derived from the Company’s proved developed oil and gas reserves, discounted
at 10%, were approximately $9.67 million for the Cimarrona property in Colombia and $6.18 million for the Osage property in Oklahoma,
respectively, at December 31, 2010.



The Company’s net oil production after royalty and other working
interests for 2010 and 2009 were as follows:





| |                   |  | Crude Oil (BBLs) | 
| | ----------------- |  | ---------------- | 
| |                   |  | Colombia         | 
| | December 31, 2010 |  | 17,607           | 
| | December 31, 2009 |  | 22,513           | 





The Company’s average production cost per barrel is as follows:



|                              |  | 2010 |       | 2009
|----------------------------- |  | ---- | ----- | ----
|                              |  | USA  |       |     
|Average Production per Barrel |  | $    | 52.34 |     



The following summarizes the developed leasehold acreage held by
the Company as of December 31, 2010 and 2009. Gross acres are the total number of acres in which the Company has a working interest.
Net acres are the sum of the Company’s fractional interests owned in the gross acres. Developed acreage is acreage in which
we have leased the mineral rights for oil & gas and have drilled or re-worked wells. Undeveloped acres are acres on which wells
have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas,
regardless of whether such acreage contains proved reserves.



9







|                  |  | Developed Acreage |         | Developed Acreage
|----------------- |  | ----------------- | ------- | -----------------
|                  |  | Gross Acreage     |         | Net Acreage      
|                  |  | Colombia          |         |                  
|December 31, 2010 |  |                   | 136,265 |                  
|December 31, 2009 |  |                   | 136,265 |                  



|                  |  | Undeveloped   |   | Undeveloped
|----------------- |  | ------------- | - | -----------
|                  |  | Gross Acreage |   | Net Acreage
|                  |  | Colombia      |   |            
|December 31, 2010 |  |               | — |            
|December 31, 2009 |  |               | — |            



The following summarizes the Company’s productive oil wells
as of December 31, 2010 and 2009. Productive wells are producing wells and wells capable of production. Gross wells are the total
number of wells in which the Company has an interest. Net wells are the sum of the Company’s fractional interests owned in
the gross wells.



|                  |  | Productive Wells |     | Productive Wells
|----------------- |  | ---------------- | --- | ----------------
|                  |  | Gross Wells      |     | Net Wells       
|                  |  | Colombia         |     |                 
|December 31, 2010 |  |                  | 7.0 |                 
|December 31, 2009 |  |                  | 7.0 |                 



Drilling Activity



In the last two years, we have only drilled Rosablanca #1 in Colombia,
which was started in December 2008 and, pursuant to the Termination Agreement in 2009, we withdrew completely from the Rosablanca
concession and wrote-off all capitalized costs relating to this concession.



Delivery Commitments



We are not obligated to provide a fixed and
determinable quantity of oil or natural gas in the near future under existing contracts or agreements. Further, during the last
three years we had no significant delivery commitments.

Item 3. Legal Proceedings



Neither our Company nor any of its property is a party to, or the
subject of, any material pending legal proceedings other than ordinary, routine litigation incidental to our business.



Item 4. (Removed and Reserved)



Not applicable.



10







PART II



Item 5.Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities



Our common stock trades on the OTC Bulletin Board under the symbol
“OEDV.OB”. The high and low closing prices, as reported by the OTC Bulletin Board, are as follows for 2010 and 2009.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.





|                             |  | High |      |  | Low |  
|---------------------------- |  | ---- | ---- |  | --- | -
|Year ended December 31, 2010 |  |      |      |  |     |  
|First Quarter                |  | $    | 0.07 |  |     | $
|Second Quarter               |  | $    | 0.07 |  |     | $
|Third Quarter                |  | $    | 0.05 |  |     | $
|Fourth Quarter               |  | $    | 0.05 |  |     | $
|                             |  |      |      |  |     |  
|Year ended December 31, 2009 |  |      |      |  |     |  
|First Quarter                |  | $    | 0.21 |  |     | $
|Second Quarter               |  | $    | 0.07 |  |     | $
|Third Quarter                |  | $    | 0.05 |  |     | $
|Fourth Quarter               |  | $    | 0.05 |  |     | $





Dividends



We have declared no cash dividends on our common stock since inception.
There are no restrictions that limit our ability to pay dividends on our common stock or that are likely to do so in the future
other than the restrictions set forth in Section 170(b) of the Delaware General Corporation Law that provides that a company may
declare and pay dividends upon the shares of its capital stock either (1) out of its surplus, as defined in and computed in accordance
with Sections 154 and 244 of the Delaware General Corporation Law, or (2) in case there shall be no such surplus, out of its net
profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. We have
not declared, paid cash dividends, or made distributions in the past. We do not  anticipate  that  we  will
 pay  cash  dividends  or  make distributions  in the  foreseeable  future.  We currently
intend to retain and reinvest future earnings to finance operations.



Securities Authorized for Issuance Under Equity Compensation
Plans



In June 2007, we implemented the 2007 Osage Exploration and Development,
Inc. Equity-Based Compensation Plan (the “Plan”) which allows the reservation of 5,000,000 shares under the Plan. Under
this Plan, securities issued may include options, stock appreciation rights (“SARs”) and restricted stock. No securities
have yet been issued under this plan since inception.



Holders



As of March 15, 2011, there were approximately 300 holders
of record of our common stock, which figure does not take into account those stockholders whose certificates are held in the name
of broker-dealers or other nominee accounts.



Issuer Purchase of Equity Securities



None.

Item 6.          Selected Financial Data



Not Applicable.



11







Item 7.          Management’s Discussion and Analysis of Financial
Condition and Results of Operation.



This report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that include, among others,
statements of: expectations, anticipations, beliefs, estimations, projections, and other similar matters that are not historical
facts, including such matters as: future capital requirements, development and exploration expenditures (including the amount and
nature thereof), drilling of wells, reserve estimates (including estimates of future net revenues associated with such reserves
and the present value of such future net revenues), future production of oil and gas, repayment of debt, business strategies, and
expansion and growth of business operations. These statements are based on certain assumptions and analyses made by our management
in light of past experience and perception of: historical trends, current conditions, expected future developments, and other factors
that our management believes are appropriate under the circumstances. We caution the reader that these forward-looking statements
are subject to risks and uncertainties, including those associated with the financial environment, the regulatory environment,
and trend projections, that could cause actual events or results to differ materially from those expressed or implied by the statements.
Such risks and uncertainties include those risks and uncertainties identified below.



Significant factors that could prevent us from achieving our stated
goals include: declines in the market prices for oil and gas, adverse changes in the regulatory environment affecting us, the inherent
risks involved in the evaluation of properties targeted for acquisition, our dependence on key personnel, the availability of capital
resources at terms acceptable to us, the uncertainty of estimates of proved reserves and future net cash flows, the risk and related
cost of replacing produced reserves, the high risk in exploratory drilling and competition. You should consider the cautionary
statements contained or referred to in this report in connection with any subsequent written or oral forward-looking statements
that may be issued. We undertake no obligation to release publicly any revisions to any forward-looking statement to reflect events
or circumstances after the date hereof or to reflect the occurrence of unanticipated events.



In June 2007, we entered into the Agreement with Gold and Empesa,
whereby we farmed-in to the approximately 165 square mile Rosablanca concession in Colombia awarded by the ANH to Gold in September,
2007. Under the Agreement, we were considered the operators of the concession and were obligated to pay all costs associated with
drilling and testing of the first well on the Rosablanca project. Revenues generated from the first well were to be allocated 50%
to us, 40% to Gold and 10% to Empesa. In March 2009, we entered into the LEC Agreement, whereby LEC agreed to provide $3,500,000
to drill the first well and become operator of Rosablanca in return for a 50% assignment of our 50% operating interest in the Rosablanca.
This Agreement also provided that LEC was entitled to receive an amount equal to two times its investment in the first well before
Osage receives any cash flow from the first well. The transaction was recorded in accordance with paragraph 47(c) SFAS 19, “Financial
Accounting and Reporting by Oil and Gas Producing Companies, ” as codified in FASB ASC section 932-360-55. Furthermore, as
part of the LEC Agreement, we issued 5,250,000 shares of our common stock to an affiliate of LEC. As a result of the LEC transaction,
revenues and investments on all future wells in Rosablanca were to be allocated 40% to Gold, 25% to LEC, 25% to us and 10% to Empesa.
We recognized no gain or loss on the assignment of our interest. On March 23, 2009, we announced we completed testing on the first
well without finding producible hydrocarbons in any of the zones evaluated. In September 2009, we entered into the Termination
Agreement with Gold, EMPESA and LEC, whereby we and LEC withdrew from the Rosablanca concession. Therefore, we wrote off our entire
investment in the Rosablanca concession as of December 31, 2009.



In August 2007, we (i) paid $1,200,000 to Gold representing the
funds Gold previously issued to a trust account established by the ANH to use for drilling the first well for the Rosablanaca concession
and (ii) issued a letter of credit in the amount of $144,000 for the benefit of Gold’s bank in Colombia representing the
guarantee required by the ANH. We were obligated to commence drilling on the first well by December 26, 2008, which we did. Under
the terms of the concession agreement with the ANH, we had the right to explore for up to six phases, with each phase lasting twelve
months. We already performed the first phase which was to drill the first well. Each phase required us to fund a new trust account,
and issue a letter of credit as well as perform certain tasks. Phase 2 required an establishment of a trust account for $790,000,
of which our share was $197,500, and an issuance of a letter of credit in the amount of $110,000, of which our share was $27,500
and obligated us to perform certain seismic work. In the first quarter of 2009, we funded both the trust account and the letter
of credit. As we withdrew from the concession in 2009, we wrote off all of the remaining balance in the trust account as of December
31, 2009.



12







On April 8, 2008, we entered into the Purchase Agreement with
Sunstone pursuant to which we acquired from Sunstone 100% of the membership interests in Cimarrona LLC. Cimarrona LLC is the owner
of a 9.4% interest in certain oil and gas assets in the Guaduas field, located in the Dindal and Rio Seco Blocks that consist of
twenty-one wells, of which seven are currently producing, that covers 30,665 acres in the Middle Magdalena Valley in Colombia as
well as a pipeline with a current capacity in excess of 30,000 barrels of oil per day. The Purchase Agreement was effective as
of April 1, 2008.



The Cimarrona property, but not the pipeline, is subject to the
Association Contract whereby we pay Ecopetrol royalties of 20% of the oil produced. The royalty amount is paid in oil. In addition
to the royalty, according to the Association Contract, Ecopetrol may, for no consideration, become a 50% partner, once an audit
of revenues and expenses indicate that the partners in the Association Contract have a received a 200% reimbursement of all historical
costs to develop and operate the Guaduas field. We believe that Ecopetrol could become a 50% partner in 2009 which would effectively
reduce the cash flows generated by the property by 50%. In addition, in 2022, the Association Contract with Ecopetrol terminates,
at which time we will have no economic interest remaining in this property. The property and the pipeline are both operated by
Pacific, which owns 90.6% of the Guaduas field. Pipeline revenues generated from Cimarrona primarily relate to transportation costs
charged to third party oil producers, including Pacific.



In 2010 and 2009, Pacific reimbursed
us $154,289 and $797,483, respectively for capital expenditures related to certain disputes regarding the pipeline. In 2009, Pacific
reduced the amount we owed them under our joint operating agreement by $799,007 relating to certain disputes we had regarding a
blending facility that they built in conjunction with the pipeline. These amounts were originally included as capitalized costs
of the pipeline. No gain or loss was recognized from these transactions.



In 2010, the Company began to acquire oil and gas leases in Logan
County, Oklahoma targeting the Mississippian formation. The Mississippian formation is located on the Anadarko Shelf in northern
Oklahoma and south-central Kansas. The top of this expansive carbonate hydrocarbon system is encountered between 4,000 and 6,000
feet and lies stratigraphically between the Pennsylvanian-aged Morrow Sand and the Devonian-aged Woodford Shale formations. The
Mississippian formation may reach 1,000 feet in gross thickness and the targeted porosity zone is between 50 and 100 feet in thickness.
The formation’s geology is well understood as a result of the thousands of vertical wells drilled and produced there since
the 1940s. Beginning in 2007, the application of horizontal cased-hole drilling and multi-stage hydraulic fracturing treatments
have demonstrated the potential for extracting significant additional quantities of oil and natural gas from the formation. As
of December 31, 2010, the Company has acquired oil and gas leases covering approximately 5,364 net acres for a total cost of $593,464.
The Company intends to focus most of its efforts and resources in 2011 on acquiring additional leases and attempting to find a
partner in order to develop this acreage. We have yet to drill any wells and, therefore, have no basis to estimate whether such
properties will produce oil and natural gas in sufficient quantities so as to be profitable or at all.



The Company has incurred significant
losses and had negative cash flow from operations in each of the last three years and has an accumulated deficit of $10,096,679
at December 31, 2010 and $8,472,209 at December 31, 2009. Substantial portions of the losses are attributable to stock based compensation
expense, asset impairment charges relating to the Rosablanca concession and interest expense. Our operating plans require additional
funds that may take the form of debt or equity financings. There can be no assurance that any additional funds will be available.
Our ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations
and obtaining additional financing.



We anticipate we will need to raise at least $2,000,000 over the
next twelve months. At present, the revenues generated from the Cimarrona and Oklahoma properties are only sufficient to cover
field operating expenses and a portion of our overhead.



We have undertaken steps as part of a plan to improve operations
with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital
and/or obtaining financing; (b) increasing our current production in the Osage and Cimarrona properties and (c) controlling overhead
and expenses.



There can be no assurance we will successfully accomplish these
steps and it is uncertain we will achieve a profitable level of operations and/or obtain additional financing. There can be no
assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all. In the event
we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary
petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this
alternative, nor does management view it as a likely occurrence.



13







Results of Operations



Year ended December 31, 2010 compared to year ended December
31, 2009



|               | 2010   |           |            | 2009 |       |        | Increase/(Decrease) |           
|-------------- | ------ | --------- | ---------- | ---- | ----- | ------ | ------------------- | ----------
|               | Amount |           | Percentage |      |       | Amount |                     | Percentage
|               |        |           |            |      |       |        |                     |           
|Oil Sales      | $      | 1,468,070 |            |      | 80.1  | %      |                     | $         
|Pipeline Sales |        | 365,707   |            |      | 19.9  | %      |                     |           
|Total Revenues | $      | 1,833,777 |            |      | 100.0 | %      |                     | $         



Oil Sales



Oil sales were $1,468,070 in 2010, an increase of $260,927, or 21.6%
in 2010, compared to $1,207,143 in 2009. The increase in oil sales is mostly due to an increase in the average gross price per
barrel sold, offset by a decrease in the number of barrels sold. In 2010, we sold 20,761 barrels (“BBLs”) compared
to 24,263 BBLs in 2009. Average gross price per barrel sold was $74.65 and $53.42 in 2010 and 2009, respectively. Oil sales in
Colombia accounted for approximately 93% and 92% of total oil sales in 2010 and 2009, respectively.



Pipeline Sales



Pipeline sales were $365,707, a decrease of $1,241,548, or 77.2%,
in 2010, compared to $1,607,255 in 2009. In 2010, our Cimarrona pipeline transported approximately 2.26 million BBLs (of which
our share was approximately 212,000 BBLs) compared to 9.24 million BBLs (of which our share was approximately 868,000 BBLs) in
2009. The Guaduas pipeline connects with the ODC pipeline (the “ODC Pipeline”) to transport oil to the port of Covenas
in Colombia. Beginning in early 2010, the ODC Pipeline has been operating close to full capacity, and during the second quarter
of 2010, the pipeline operated at full capacity which has severely restricted our ability to transport oil over our pipeline. Conditions
improved in the second half of 2010, although we anticipate that in 2011, pipeline sales will remain significantly below the 2009
levels.



Total Revenues



Total revenues were $1,833,777 in 2010, a decrease of $980,621,
or 34.8% in 2010, compared to $2,814,398 in 2009. Approximately 95% and 97% of our 2010 and 2009 revenues, respectively, were derived
from our Cimarrona property in Colombia. Pipeline sales accounted for approximately 19.9% and 57.1% of total revenues in 2010 and
2009, respectively.



Production



|              |  | 2010         |  |  | 2009        |   |  | Increase/(Decrease) | 
|------------- |  | ------------ |  |  | ----------- | - |  | ------------------- | 
|              |  | Net  Barrels |  |  | %  of Total |   |  | Net  Barrels        | 
|Colombia      |  | 17,607       |  |  | 90.9        | % |  | 22,513              | 
|United States |  | 1,761        |  |  | 9.1         | % |  | 2,263               | 
|Total         |  | 19,368       |  |  | 100.0       | % |  | 24,776              | 



Production, net of royalties, was 19,368, a decrease of 5,408 BBLs,
or 21.8% in 2010 compared to 24,776 BBLs in 2009. Colombia production, net of royalties, accounted for 90.9% of total production
in both 2010 and 2009.



14







Operating Costs and Expenses





|                                       |  | 2010   |           |            | 2009 |       | Increase/(Decrease) | 
|-------------------------------------- |  | ------ | --------- | ---------- | ---- | ----- | ------------------- | 
|                                       |  |        |           | Percent of |      |       |                     | 
|                                       |  | Amount |           | Revenues   |      |       | Amount              | 
|Operating Costs and Expenses           |  |        |           |            |      |       |                     | 
|Operating Expenses                     |  | $      | 646,240   |            |      | 35.2  | %                   | 
|Asset Impairment Charges               |  |        | —         |            |      | 0.0   | %                   | 
|Stock Based Compensation Expense       |  |        | 39,300    |            |      | 2.1   | %                   | 
|Depreciation , Depletion and Accretion |  |        | 351,463   |            |      | 19.2  | %                   | 
|General & Administrative Expenses      |  |        | 2,419,238 |            |      | 131.9 | %                   | 
|Total Operating Costs and Expenses     |  | $      | 3,456,241 |            |      | 188.5 | %                   | 





Operating Expenses



Our operating expenses in 2010 were $646,240, a decrease of $317,093,
or 32.9% compared to $963,333 in 2009. The decrease in operating expense is due primarily to the decrease in oil production in
both Colombian and United States as well as a significant decrease in the pipeline transportation volume in 2010 compared to 2009.
Operating expenses as a percentage of total revenues increased to 35.2% in 2010 from 34.2% in 2009 due to the decrease in revenues
exceeding the decrease in operating expenses.



Asset Impairment



No asset impairment charges were recorded in 2010. In 2009, we recorded
an asset impairment charge of $1,900,248 relating to our withdrawal from the Rosablanca concession in 2009.



Stock Based Compensation Expense



Stock based compensation expense was $39,300 and $55,493 in 2010
and 2009. 2009 stock based compensation expense related primarily to $48,000 of the value of shares issued to four consultants
in 2009. 2010 stock based compensation expense related to shares issued to an officer and two consultants. All shares were immediately
vested and the valued was based on the stock price at the date of issuance.



General and Administrative Expenses



General and administrative expenses were $2,419,238
and $1,862,475 in 2010 and 2009, respectively. The Company recorded an $883,743 equity tax expense in 2010 as, in the first quarter
of 2010, we were notified by Division de Impuestos y Actuanas Nacionales (“DIAN”), the Colombian tax authorities, that
Cimarrona owes this amount for taxes assessed on its equity value relating to its operations in 2001 and 2003 prior to its ownership
by us. In order to compute the equity value the equity tax is assessed upon, Cimarrona subtracted the cost of its non-producing
wells in 2001 and 2003. However, DIAN’s position is that as long as the field is productive, Cimarrona should not have subtracted
the cost of the non-producing wells. The Company is appealing DIAN’s decision, but in the event the Company loses its appeal,
it believes it may need to begin paying the taxes in the first quarter of 2011. The Company believes that, in the event it loses
its appeal, it may be able to make these tax payments over a three to five year period. Excluding these Colombian equity taxes,
general and administrative expenses would have been $1,535,495, a decrease of $326,980, or 17.6%, over the 2009 levels, due primarily
to the fact that no bonus was paid to officers in 2010 compared to $150,000 bonus paid to officers in 2009 and $56,322 reduction
in insurance expense in 2010 compared to 2009.



Depreciation, depletion and accretion



Depreciation, depletion and accretion were $351,463 in 2010 compared
to and $374,121 in 2009. The decrease in depreciation, depletion and accretion is primarily due to lower production volumes in
the Guaduas field.



15







Loss from Operations



Loss from operations was $1,622,464 and $2,341,272 in 2010 and 2009,
respectively.



Interest Expense



Interest expense was $2,077 and $5,323 in 2010 and 2009. The interest
expenses related to the asset retirement obligation on Rosablanca was $3,248 in 2009 and zero in 2010.



Net Loss



Net loss was $1,621,470 and $2,316,493 in 2010 and 2009, respectively.



Foreign Currency Translation



Foreign currency translation gain was $99,308 in 2010 compared to
$124,617 in 2009. The Colombian Peso to Dollar Exchange Rate averaged 1,899 and 2,048 in 2010 and 2009, respectively. The Colombian
Peso to Dollar Exchange Rate was 1,923 and 2,053 at December 31, 2010 and December 31, 2009, respectively.



Comprehensive Loss



Comprehensive loss was $1,522,162 and $2,191,876 in 2010 and 2009,
respectively.



Loss per Share



Basic and diluted loss per share was $0.04 and $0.05 in 2010 and
2009, respectively.



Liquidity and Capital Resources



We had working capital deficit of $653,503 at December 31, 2010
compared to a working capital of $1,095,699 at December 31, 2009. Working capital deficit at December 31, 2010, consisted primarily
of $872,308 of accrued expenses and $202,880 of accounts payable, offset by $307,566 of cash and equivalents. Working capital at
December 31, 2009, consisted primarily of $1,174,989 of cash and equivalents and $156,211 of accounts receivable offset by $269,346
of accounts payable and accrued expenses.



At both December 31, 2010 and December 31, 2009, we had no debt
on our balance sheet. Since January 1, 2007, we have raised in excess of $6,000,000 in gross proceeds through various debt and
equity financings, as well as partnership agreements. We used the majority of the proceeds for costs related to our Rosablanca
concession in Colombia, Mississippian oil and gas lease acquisition costs in Logan County, Oklahoma, as well as for working capital
purposes.



Net cash used by operating activities was $339,037 in 2010 compared
to net cash provided by operating activities was $681,218 in 2009. The major components of net cash used by operating activities
in 2010 were the $1,621,470 net loss, offset by the $745,052 increase in accounts payable and accrued expenses, the $351,463 provision
for depreciation and depletion and the $146,675 decrease in accounts receivable. The major components of the net cash provided
by operating activities in 2009 were the $1,900,247 asset impairment on the Rosablanca concession, the $582,876 increase in accounts
payable and accrued expenses and the $374,121 provision for depreciation and depletion, offset by the net loss of $2,316,493.



Net cash used in investing activities was $527,406 and $531,326
for 2010 and 2009, respectively. Net cash used in investing activities in 2010 consisted primarily of the $675,039 investments
in oil and gas properties offset by the $154,289 reimbursement by Pacific for the pipeline. Net cash used in investing activities
in 2009 consisted primarily of $1,900,755 investments in oil and gas properties, offset by $825,296 reimbursement by LEC for the
Rosablanca project and $797,483 reimbursement by Pacific for the pipeline.



16







Net cash used by financing activities was $3,535 and $3,320 in 2010
and 2009, respectively and consisted of payments on a promissory note used to purchase a truck.



Net operating revenues from our oil production are very sensitive
to changes in the price of oil making it very difficult for management to predict whether or not we will be profitable in the future.



We conduct no product research and development. Any expected purchase
of significant equipment is directly related to drilling operations and the completion of successful wells.



We operate our Osage property through independent contractors that
operate producing wells for several small oil companies. Pacific Rubiales, which owns 90.6% of the Guaduas field, is the operator
of Cimarrona.



We are responsible for any contamination of land we own or lease.
However, we carry pollution liability insurance policies, which may limit some potential contamination liabilities as well as claims
for reimbursement from third parties.



Item 7A.          Quantitative and Qualitative Disclosures about Market
Risk



We have no material exposure to interest rate changes. We are subject
to changes in the price of oil and exchange rates of the Colombian Peso, which are out of our control. In
our Oklahoma property, we sold oil at prices ranging from $68.61 to $85.25 per barrel in 2010 compared to $32.35 to $73.66 per
barrel in 2009. In our Cimarrona property in Colombia, we sold oil at prices ranging from $63.32 to $81.45 per barrel in 2010 compared
to $28.06 to $74.40 per barrel in 2009.The Colombian Peso to Dollar Exchange Rate averaged approximately 1,899 and 2,048
in 2010 and 2009, respectively. The Colombian Peso to Dollar Exchange Rate was 1,923 and 2,053 at December 31, 2010 and December
31, 2009.



Effect of Changes in Prices



Changes in prices during the past few years have been a significant
factor in the oil and gas industry. The price received for the oil produced by us fluctuated significantly during the last year.
Changes in the price that we receive for our oil and gas is set by market forces beyond our control as well as governmental intervention.
Average price received by us for a barrel of oil equivalent (“BOE”) were $74.65 and $53.42 in 2010 and 2009, respectively.
The volatility and uncertainty in oil and gas prices have made it more difficult for a company like us to increase our oil and
gas asset base and become a significant participant in the oil and gas industry. We currently sell all of our oil production to
Sunoco in the United States and to Hocol in Colombia. However, in the event these customers discontinued oil and gas purchases,
we believe we can replace these customers with other customers who would purchase the oil and gas at terms standard in the industry.



Critical Accounting Policies and Estimates



Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates our estimates and judgments,
including those related to revenue recognition, recovery of oil and gas reserves, financing operations, and contingencies and litigation.



Oil and Gas Properties



We follow the "successful efforts" method of accounting
for our oil and gas exploration and development activities, as set forth in the Statement of Financial Accounting Standards (SFAS)
No. 19, as codified by FASB ASC topic 932. Under this method, we initially capitalize expenditures for oil and gas property acquisitions
until they are either determined to be successful (capable of commercial production) or unsuccessful. The carrying value of all
undeveloped oil and gas properties is evaluated periodically and reduced if such carrying value appears to have been impaired.
Leasehold costs relating to successful oil and gas properties remain capitalized while leasehold costs which have been proven unsuccessful
are charged to operations in the period the leasehold costs are proven unsuccessful. Costs of carrying and retaining unproved properties
are expensed as incurred.



17







The costs of drilling and equipping development wells are capitalized,
whether the wells are successful or unsuccessful. The costs of drilling and equipping exploratory wells are capitalized until they
are determined to be either successful or unsuccessful. If the wells are successful, the costs of the wells remain capitalized.
If, however, the wells are unsuccessful, the capitalized costs of drilling the wells, net of any salvage value, are charged to
operations in the period the wells are determined to be unsuccessful.



The provision for depreciation and depletion of oil and gas properties
is computed on the unit-of-production method. Under this method, we compute the provision by multiplying the total unamortized
costs of oil and gas properties including future development, site restoration, and dismantlement abandonment costs, but excluding
costs of unproved properties by an overall rate determined by dividing the physical units of oil and gas produced during the period
by the total estimated units of proved oil and gas reserves. This calculation is done on a country-by-country basis. As of December
31, 2010 and December 31, 2009, our oil production operations were conducted in Colombia and in the United States of America. The
cost of unevaluated properties not being amortized, to the extent there is such a cost, is assessed quarterly to determine whether
the value has been impaired below the capitalized cost. The cost of any impaired property is transferred to the balance of oil
and gas properties being depleted. The costs associated with unevaluated properties relate to projects which were undergoing exploration
or development activities or in which we intend to commence such activities in the future. We will begin to amortize these costs
when proved reserves are established or impairment is determined.



In accordance with SFAS No. 143, "Accounting for Asset Retirement
Obligations," as codified by FASB ASC topic 410, we report a liability for any legal retirement obligations on our oil and
gas properties. The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to
plug, abandon, and remediate the producing properties at the end of their productive lives, in accordance with state laws, as well
as the estimated costs associated with the reclamation of the property surrounding. The Company determines the asset retirement
obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations
are recorded as a liability at the estimated present value as of the asset's inception, with an offsetting increase to producing
properties. Periodic accretion of the discount related to the estimated liability is recorded as an expense in the statement of
operations.



The estimated liability is determined using significant assumptions,
including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells,
and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset
retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties,
resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity
of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company's wells may vary
significantly from prior estimates.



Revenue Recognition



We recognize revenue upon transfer of ownership of the product to
the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences
an arrangement between the customer and us, (iii) a fixed sales price has been included in such invoice and (iv) collection from
such customer is probable.



Off-Balance Sheet Arrangements



Our Company has not entered into any transaction,
agreement or other contractual arrangement with an entity unconsolidated with us under which we have



|· |  | an obligation under a guarantee contract,
|- |  | -----------------------------------------

|· |  | a retained or contingent interest in assets transferred to the unconsolidated entity
or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18







|· |  | any obligation, including a contingent obligation, under a contract that would be
accounted for as a derivative instrument, or
|- |  | ------------------------------------------------------------------------------------------------------------------------------

|· |  | any obligation, including a contingent obligation, arising out of a variable interest
in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk
or credit risk support to, or engages in leasing, hedging or research and development services with us.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 8.Financial Statements and Supplementary
Data



See Consolidated Financial Statements beginning on page F-1



Item 9.Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure



None



Item 9A. Controls and Procedures



(a) Disclosure Controls and Procedures.



The Company’s management, including the Company’s principal
executive officer and principal financial officer, evaluated the effectiveness of the Company’s “disclosure controls
and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Exchange Act. Based upon their evaluation,
the principal executive officer and principal financial offer concluded that, as of the end of the period covered by this report,
the Company’s disclosure controls and procedures were not effective for the purpose of ensuring that the information required
to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated
to the Company’s management, including its principal executive and principal financial offers, as appropriate to allow timely
decisions regarding required disclosure.



(b) Internal Controls Over Financial Reporting.



Management’s Report on Internal Control Over Financial
Reporting



The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial
statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of
America.



Management conducted an assessment of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2010, utilizing a top-down, risk based approach described in SEC Release
No. 34-55929 as suitable for smaller public companies.  Based on this assessment, management determined that the Company’s
internal control over financial reporting as of December 31, 2010 is not effective. Based on this assessment, management has determined
that, as of December 31, 2010, there were material weaknesses in our internal control over financial reporting. The material weaknesses
identified during management's assessment was the lack of independent oversight by an audit committee of independent members of
the Board of Directors. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness
is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected. Given the difficulty of finding qualified individuals
who are willing to serve as independent directors, there has been no change in the audit committee.



Our internal control over financial reporting includes policies
and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions
and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures
are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized acquisitions,
use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements
are prevented or timely detected.



19







All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect
to financial statement preparations and presentations. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.



(c) Changes to Internal Control Over Financial Reporting.



Except as indicated herein, there were no changes in the Company’s
internal control over financial reporting during the quarter ending December 31, 2010 that have materially affected, or are reasonable
likely to materially affect, the Company’s internal control over financial reporting.



ITEM 9B. Other Information



None



Item 10.          Directors,
Executive Officers and Corporate Governance.



The following table sets forth the names, ages, and offices held
by our directors and executive officers:



|Name          |  | Position                                                              |  | Director Since |  | Age
|------------- |  | --------------------------------------------------------------------- |  | -------------- |  | ---
|Kim Bradford  |  | President, Chief Executive Officer, Chief Financial Officer, Chairman |  | February 2007  |  | 58 
|Greg Franklin |  | Chief Geologist, Director                                             |  | May 2005       |  | 54 
|Larry Ray     |  | Director                                                              |  | September 2010 |  | 63 



A list of current officers and directors appears above. The directors
of the Company are elected annually by the stockholders. The officers serve at the pleasure of the board of directors. The directors
do not receive fees or other remuneration for their services, but are reimbursed for their out-of-pocket expenses to attend board
meetings. All officers have employment contracts with compensation arrangements if they resign, retire or are terminated or such
events occur as a result of a change in control of the Company.



The principal occupation and business experience during at least
the last five years for each of the present directors and executive officers of the Company are as follows:



Kim Bradford:Mr. Bradford was elected President and
Chief Executive Officer of the Company in January 2007 and elected to our board as Chairman effective February 2007. Mr. Bradford
also served as our Chief Financial Officer and Secretary from January 2007 through November 9, 2007. In September 2008, Mr. Bradford
once again became our Chief Financial Officer. In August 2005, Mr. Bradford co-founded Catalyst Consulting Partners LLC, a California
based consulting firm that advises publicly traded companies and their management teams on executive search, shareholder communications,
general media consulting, investor relations, website design, and other corporate matters. In 2001, Mr. Bradford co-founded Decision
Capital Management, LLC, the successor firm to Decision Capital Management LP, a Registered Investment Advisor firm which he founded
in 1999. Prior to founding Decision Capital, Mr. Bradford has been involved in the brokerage business for over 25 years, both as
an employee of major Wall Street firms, such as Merrill Lynch and Morgan Stanley, and as a principal in a NASD broker dealer firm
specializing exclusively in natural resource based investments, such as oil and gas and precious metals mining.



20







Greg L. Franklin: Mr. Franklin has been our Chief
Geologist since November 9, 2007 and a director of the Company since May 2005. Mr. Franklin previously served as a consultant to
the Company in the role of a petroleum geologist since February 2005. Mr. Franklin has 25 years experience in the search, discovery,
management and production of oil and gas. From March 1999 to February 2005 Mr. Franklin was a staff geologist for Barbour Energy.
Mr. Franklin’s previous experience includes positions as Vice President for Gulf Coast Exploration and Development Company
and geologist with Conoco. Mr. Franklin Graduated with a Bachelor of Science in Geology from Oklahoma State University 1980.



Larry Ray: Mr. Ray has been a director of the Company
since September 2010. Mr. Ray has over 35 years of experience in all phases of international and domestic oil and gas production
with both public and private companies. Since September 2007 he has been an independent oil and gas investor and consultant. Mr.
Ray's previous experience includes positions as President and Chief Operating Officer and interim Chief Financial Officer of Seven
Seas Petroleum, an exploration and production company with primary operations in Colombia which was listed on both the Toronto
and American Stock Exchanges, and President and Chief Operating Officer of The GHK Company, a large independent oil and gas company
based in the Mid-continent. During his career Mr. Ray has been involved in drilling over 130 wells, constructing a 25,000 BBLS
per day production facility and 40 mile pipeline, evaluating and bidding on more than $250 million in properties and securing over
$650 million in financing and farm-out agreements. Mr. Ray graduated with an MBA in Finance from Eastern New Mexico University
in 1971 after receiving a Bachelor of Business Administration from the same institution in 1970. He is a member of the Association
of International Petroleum Negotiators, the American Association of Professional Landmen, the American Association of Petroleum
Geologist (Associate Member) and the Society of Petroleum Engineers.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a)
of the Exchange Act, requires our executive officers and directors, and persons who beneficially own more than ten percent of the
Company’s common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive
officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of
all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations
from our executive officers and directors, we believe that during the year ended December 31, 2010, the officers and directors
filed all of their respective Section 16(a) reports on a timely basis.



Audit Committee



We do not have
an Audit Committee, as our board of directors during 2010 performed the same functions of an Audit Committee, such as: recommending
a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors
independence, the financial statements and their audit report; and reviewing management's administration of the system of internal
accounting controls. None of our directors are independent and not current director would qualify as an independent financial expert.
We do not currently have a written audit committee charter or similar document.



Nominating Committee



We do not have
a Nominating Committee or Nominating Committee Charter. Our Board of Directors performed some of the functions associated with
a Nominating Committee. We have elected not to have a Nominating Committee at this time, however, our Board of Directors intends
to continually evaluate the need for a Nominating Committee.



Code of Conduct



We have a written code
of conduct that governs all of our officers, directors, employees and contractors. The code of conduct relates to written standards
that are reasonably designed to deter wrongdoing and to promote:



|(1) |  | Honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal and professional relationships;
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Full, fair, accurate, timely and understandable disclosure
in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer;
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21







|(3) |  | Compliance with applicable governmental laws, rules
and regulations;
|--- |  | --------------------------------------------------------------------

|(4) |  | The prompt internal reporting of violations of the code
to an appropriate person or persons identified in the code; and
|--- |  | -----------------------------------------------------------------------------------------------------------------------

|(5) |  | Accountability for adherence to the code.
|--- |  | -----------------------------------------



Involvement in Certain Legal Proceedings



No director, person nominated to become a director,
executive officer, promoter or control persons of our company has been involved during the last ten years in any of the following
events that are material to an evaluation of his ability or integrity:



|· |  | Bankruptcy petitions filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· |  | Conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses).
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------



|· |  | Being subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring or suspending or otherwise limiting
his involvement in any type of business, securities or banking activities, or
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· |  | Being found by a court of competent jurisdiction (in a civil action), the Securities
and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended or vacated.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation
Committee



We
currently do not have a compensation committee of the Board of Directors. Until a formal committee is established, if at all, our
entire board of directors will review all forms of compensation provided to our executive officers, directors, consultants and
employees including stock compensation and loans.



Item 11.          Executive
Compensation



During the last two fiscal years, the following executive officers
of our company have received total annual salary and bonus exceeding $100,000:



|SUMMARY COMPENSATION
    TABLE
|------------------------------
|Name and principalposition    
|Kim Bradford                  
|President, CEO and CFO        
|Greg Franklin                 
|Chief Geologist               



22







On November 9, 2007, the Company entered into employment agreements
with Kim Bradford to serve as President and Chief Executive Officer and Greg Franklin to serve as Chief Geologist. The agreements
were for two years ending November 30, 2009 (“Employment Period”) and allow the officers to be eligible for an annual
bonus as determined by the Board of Directors. In the event that any officer’s employment is terminated for a Change of Control,
then he shall be eligible to receive, in one lump payment, the greater of (i) annual base salary in effect immediately prior to
the Change of Control and (ii) the remaining base salary in effect immediately prior to the Change of control owed to the officer
until the end of the Employment Period. Mr. Bradford’s employment agreement included an annual base salary of $144,000 and
a signing bonus of $150,000. Mr. Franklin’s employment included an annual base salary of $120,000 and a signing bonus of
2,000,000 shares of the Company’s Stock, which vested as to 100% on January 1, 2009. Both Mr. Bradford and Mr. Franklin’s
annual base salaries were subsequently increased to $240,000 during 2009 pursuant to verbal agreements. On September 1, 2010, the
Company entered into a new two-year employment agreement with Greg Franklin to continue serving as Chief Geologist. Mr. Franklin’s
agreement included an annual base salary of $240,000 and the issuance of 1,000,000 shares of the Company’s stock, which vested
immediately upon issuance. The Company is currently negotiating with Mr. Bradford on a new employment contract.



We do not have any other contractual arrangements with our executive
officers, promoters or directors, nor do we have any compensatory arrangements with our executive officers, promoters or directors
other than as described below:



Mr. Ray, who became a director in September 2010, received $35,000
and $5,000 in 2010 and 2009 for consulting services provided to the Company. In addition, Mr. Ray received 500,000 and 100,000
shares of the Company’s stock in 2010 and 2009, respectively. The shares vested immediately upon issuance to Mr. Ray. The
value of the shares issued to Mr. Ray in 2010 and 2009 were $12,500 and $3,000, respectively, based on the closing stock price
at the date of issuance.



Outstanding
Equity Awards at Fiscal Year-End





|                 |  | Option Awards                                                                                                           |  |  | Stock Awards                                                                                                              | 
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------- | 
|Name
        (a) |  | Number of
        Securities
        Underlying
        Unexercised
        Options (#)
        Exercisable
        (b) |  |  | Number of
        Securities
        Underlying
        Unexercised
        Options (#)
        Unexercisable
        (c) | 
|Kim Bradford     |  | —                                                                                                                       |  |  | —                                                                                                                         | 
|Greg Franklin    |  | —                                                                                                                       |  |  | —                                                                                                                         | 



23







Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters



The following table shows information as of March 15, 2011 with
respect to each beneficial owner of more than five percent of the Company’s Common Stock:



|Name  and Address of             |  |  | Common  Stock      |  |  | Percent   |  
|-------------------------------- |  |  | ------------------ |  |  | --------- | -
|Beneficial  Owner                |  |  | Beneficially Owned |  |  | of  Class |  
|Kim Bradford                     |  |  | 6,055,000          |  |  | 13.0      | %
|2445 5th Avenue, Suite 310       |  |  |                    |  |  |           |  
|San Diego, CA  92101             |  |  |                    |  |  |           |  
|E. Peter Hoffman, Jr. [1]        |  |  | 5,970,000          |  |  | 12.8      | %
|6301 N. Western                  |  |  |                    |  |  |           |  
|Suite 260                        |  |  |                    |  |  |           |  
|Oklahoma City, OK  73118         |  |  |                    |  |  |           |  
|Mustang Capital Venture, LLC [2] |  |  | 5,250,000          |  |  | 11.3      | %
|10101 Reunion Place, Suite 1000  |  |  |                    |  |  |           |  
|San Antonio, TX  78216           |  |  |                    |  |  |           |  
|Greg L. Franklin                 |  |  | 4,000,000          |  |  | 8.6       | %
|2445 5th Avenue, Suite 310       |  |  |                    |  |  |           |  
|San Diego, CA  92131             |  |  |                    |  |  |           |  
|Sunstone Corporation [3]         |  |  | 3,875,000          |  |  | 8.1       | %
|101 N. Robinson, Suite 800       |  |  |                    |  |  |           |  
|Oklahoma City, OK  73102         |  |  |                    |  |  |           |  
|Larry Ray                        |  |  | 600,000            |  |  | 1.3       | %
|2445 5th Avenue, Suite 310       |  |  |                    |  |  |           |  
|San Diego, CA  92131             |  |  |                    |  |  |           |  



The percentage ownership is based on 46,649,775 shares outstanding
at March 15, 2011



[1] Information is derived from Form 5 filed by Mr. Hoffman, Jr.

[2] Information is derived from Schedule 13D filed by Sunstone Corporation.
Includes 1,250,000 warrants to purchase shares of common stock exercisable within 60 days.
[3] Information is derived from Schedule 13D filed by Mustang Capital Venture, LLC.



24







The following table shows information as of March 15, 2011 with
respect to each of the beneficial owners of the Company’s Common Stock by its executive officers, directors and nominee individually
and as a group:



|Name  and Address of        |  | Common Stock       |  |  | Percent   |  
|--------------------------- |  | ------------------ |  |  | --------- | -
|Beneficial  Owner           |  | Beneficially Owned |  |  | of  Class |  
|Kim Bradford                |  | 6,055,000          |  |  | 13.0      | %
|2445 5th Avenue, Suite 310  |  |                    |  |  |           |  
|San Diego, CA  92101        |  |                    |  |  |           |  
|Greg L. Franklin            |  | 4,000,000          |  |  | 8.6       | %
|2445 5th Avenue, Suite 310  |  |                    |  |  |           |  
|San Diego, CA  92131        |  |                    |  |  |           |  
|Larry Ray                   |  | 600,000            |  |  | 1.3       | %
|2445 5th Avenue, Suite 310  |  |                    |  |  |           |  
|San Diego, CA  92131        |  |                    |  |  |           |  
|Officers and Directors as a |  | 10,655,000         |  |  | 22.8      | %
|Group (3 people)            |  |                    |  |  |           |  



The percentage ownership is based on 46,659,775 shares outstanding
at March 15, 2011.



There are no family relationships among the directors and executive
officers.



Changes in Control



On December 28, 2006, a change of control occurred when Kim Bradford,
our Chief Executive Officer, President, Chief Financial Officer and Chairman, along with other investors entered into a transaction
with the Company whereby for a $470,875 promissory note, the Company issued a total of 18,835,000 shares of Common Stock, or approximately
64% of the total shares outstanding. The shares were valued based on the approximate asset value per share prior to the transaction.
Of the $470,875 promissory notes, Mr. Bradford issued a note in the amount of $151,375 for the purchase of 6,055,000 shares. In
December 2007, Mr. Bradford paid in full his note plus accrued interest.



Item 13.Certain Relationships
and Related Transactions



There have been no transactions during the last two years, or proposed
transactions, to which we were or are to be a party in which any of the following persons had or is to have a direct or indirect
material interest:



·any
officer or director;

·any
nominee for election as a director;

·any
beneficial owner of more than five percent of our voting securities;

·any
member of the immediate family of any of the above persons.



Director Independence



Our Board of Directors is made up of Kim Bradford, our President,
Chief Executive Officer and Chief Financial Officer, Greg Franklin, our Chief Geologist and Larry Ray. Our common stock trades
on the Over-the-Counter Bulletin Board. Because we are traded on the Over-the-Counter Bulletin Board, we are not currently subject
to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors
be independent.



25







Since we are not currently subject to corporate governance standards
relating to the independence of our directors, we choose to define an "independent" director in accordance with applicable
independence standards required of issuers listed on the NASDAQ Capital Market. NASDAQ Marketplace Rule 4200(a)(15) defines an
"Independent director" as a person other than an executive officer or employee of the company or any other individual
having a relationship which, in the opinion of the issuer's board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. At this time, the Board has determined that none of its employee directors
are independent under the above definition.



Item 14. Principal Accounting Fees and Services



Selection
of our Independent Registered Public Accounting Firm is made by the Board of Directors. GKM LLP has been selected as our Independent
Registered Public Accounting Firm for the current fiscal year. All audit and non-audit services provided by GKM LLP are pre-approved
by the Board of Directors which gives due consideration to the potential impact of non-audit services on auditor independence.



In
accordance with Independent Standard Board Standards No. 1 (Independence Discussion with Audit Committees), we received a letter
and verbal communication from GKM LLP that it knows of no state of facts which would impair its status as our independent public
accountants. The Board of Directors has considered whether the non-audit services provided by GKM LLP are compatible with maintaining
its independence and has determined that the nature and substance of the limited non-audit services have not impaired GKM LLP s
status as our Independent Registered Public Accounting Firm.



AUDIT FEES



The
aggregate fees billed and anticipated by our auditor for professional services rendered for the audit of our annual financial statements
and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q were $85,000 for both 2010 and 2009.



TAX FEES



Our
auditors did not bill us for any tax services during 2010 and 2009.



ALL OTHER
FEES



Our
auditors did not bill us for any other services during 2010 and 2009.



26







Part IV



Item 15. Exhibit, Financial Statements Schedules



| | Exhibit No. |  | Description                                                                                                                                                                                                      
| | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1         |  | Plan of Reorganization and Agreement of Merger, dated June 18, 2007 (1)                                                                                                                                          
| | 3.1         |  | Articles of Incorporation of Osage Exploration and Development, Inc. (1)                                                                                                                                         
| | 3.2         |  | Bylaws of Osage Exploration and Development, Inc. (1)                                                                                                                                                            
| | 10.1        |  | Agreement for Acquisition of Oil and Gas Leaseholds between Conquest Exploration Company, LLC, David Farmer, Charles Volk, Jr. and Osage Energy Company, LLC dated November 10, 2004. (1)                        
| | 10.2        |  | Assignment and Bill of Sale between Conquest Exploration Company, LLC and Osage Energy Company, LLC dated January 24, 2005. (1)                                                                                  
| | 10.3        |  | $250,000 Note and Security Agreement with Vision Opportunity Master Fund, Ltd. dated February 13, 2007. (1)                                                                                                      
| | 10.4        |  | $1,100,000 Unsecured Convertible Promissory Note with Marie Baier Foundation dated July 16, 2007. (2)                                                                                                            
| | 10.5        |  | Form of Warrant issued to Marie Baier Foundation in connection with the $1,100,000 Unsecured Convertible Promissory Note. (2)                                                                                    
| | 10.6        |  | Rosa Blanca Carried Interest Agreement dated June 21, 2007.  (3)                                                                                                                                                 
| | 10.7        |  | 2007 Equity Based Compensation Plan (4)                                                                                                                                                                          
| | 10.8        |  | Purchase and Sale Agreement for the purchase of the Hansford Property  (4)                                                                                                                                       
| | 10.8.1      |  | Extension Agreement with Pearl Resources, Corp. for the Hansford Property (5)                                                                                                                                    
| | 10.8.2      |  | Letter from Charles Volk regarding Ownership of the Hansford Property (6)                                                                                                                                        
| | 10.9        |  | Consulting Agreement dated January 1, 2007 with Greg Franklin (4)                                                                                                                                                
| | 10.10       |  | Consulting Agreement dated February 1, 2007 with Ran Furman (4)                                                                                                                                                  
| | 10.11       |  | Form of Stock Subscription Receivable dated December 28, 2006 (4)                                                                                                                                                
| | 10.11.1     |  | Form of Amendment #1 to Stock Subscription Receivable dated August 1, 2007 (4)                                                                                                                                   
| | 10.12       |  | Oil and Gas Mining Lease with the Osage Nation dated July 21, 1999 (4)                                                                                                                                           
| | 10.13       |  | Office lease agreement with Catalyst Consulting Partners, LLC (4)                                                                                                                                                
| | 10.14       |  | Employment Agreement with Kim Bradford, President and CEO (7)                                                                                                                                                    
| | 10.15       |  | Employment Agreement with Greg Franklin, Chief Geologist (7)                                                                                                                                                     
| | 10.15.1     |  | Restricted Stock Agreement with Greg Franklin, Chief Geologist (7)                                                                                                                                               
| | 10.16       |  | Employment Agreement with Ran Furman, Chief Financial Officer (7)                                                                                                                                                
| | 10.16.1     |  | Restricted Stock Agreement with Ran Furman, Chief Financial Officer (7)                                                                                                                                          
| | 10.17       |  | Office Lease, dated February 1, 2008, by and between Osage Exploration & Development, Inc. and Fifth & Laurel Associates, LLC. (8)                                                                               
| | 10.18       |  | Membership Purchase Interest between Osage Exploration and Development, Inc. and Sunstone Corporation dated April 8, 2008 (9)                                                                                    
| | 10.18.1     |  | Warrant to purchase 1,125,000 shares of common stock of Osage Exploration and Development, Inc. issued to Sunstone Corporation dated April 8, 2003 (9)                                                           
| | 10.19       |  | Independent Contractor Agreement between Osage Exploration and Development, Inc. and E. Peter Hoffman, Jr. dated July 2, 2008 (10)                                                                               
| | 10.20       |  | Agreement between Lewis Energy Colombia, Inc., Gold Oil Plc Sucursal Colombia and Osage Exploration and Development, Inc. and Osage Exploration and Development, Inc., Sucrusal Colombia dated March 3, 2009 (11)
| | 10.21       |  | Settlement Agreement between Lewis Energy Colombia, Inc., Gold Oil Plc Sucursal Colombia, EMPESA, SA, and Osage Exploration and Development, Inc. Sucrusal Colombia dated September 15, 2009 (12)                
| | 10.22       |  | Employment Agreement with Greg Franklin, Chief Geologist (13)                                                                                                                                                    
| | 10.22.1     |  | Restricted Stock Agreement with Greg Franklin, Chief Geologist (13)                                                                                                                                              
| | 10.23       |  | $500,000 Promissory Note to Blackrock Management, Inc.  (14)                                                                                                                                                     
| | 10.23.1     |  | Escrow Agreement between Osage Exploration and Development, Inc., Blackrock Management, Inc. and Robertson & Williams (14)                                                                                       



27









| | 10.23.2 |  | Assignment of Oil and Gas Leases between Osage Exploration and Development, Inc. and Blackrock Management, Inc. (14)                               
| | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.23.3 |  | Mortgage between Osage Exploration and Development, Inc. and Blackrock Management, Inc. (14)                                                       
| | 10.24   |  | Reddy Petroleum Company reserve report for the Osage Property as of December 31, 2010 (*)                                                          
| | 10.24   |  | Petrotech Engineering Ltd. reserve report for the Cimarrona property as of December 31, 2010 (*)                                                   
| | 21.1    |  | List of Subsidiaries                                                                                                                               
| | 31.1    |  | Certification of Chief Executive pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
| | 31.2    |  | Certification of Chief Financial pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
| | 32.1    |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)   
| | 32.2    |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)   



(1) Incorporated by reference
to Osage’s Form 10-SB filed July 6, 2007

(2) Incorporated by reference
to Osage’s Form 8-k filed July 17, 2007

(3) Incorporated by reference
to Osage’s Form 8-k filed August 13, 2007

(4) Incorporated by reference to Osage’s Form 10-SB
Amendment No. 1 filed August 27, 2007

(5) Incorporated by reference to Osage’s Form 10-SB
Amendment No. 2 filed October 15, 2007

(6) Incorporated by reference to Osage’s Form 10-SB
Amendment No. 3 filed November 19, 2007

(7) Incorporated by reference to Osage’s Form 10-SB
Amendment No. 5 filed December 28, 2007

(8) Incorporated by reference to Osage’s Form 8-k
filed March 4, 2008

(9) Incorporated by reference to Osage’s Form 8-k
filed April 10, 2008

(10) Incorporated by reference to Osage’s Form
8-k filed July 7, 2008

(11) Incorporated by reference to Osage’s Form
8-k filed March 5, 2009

(12) Incorporated by reference to Osage’s Form
8-k filed September 17, 2009

(13) Incorporated by reference to Osage’s Form
8-k filed September 7, 2011

(14) Incorporated by reference to Osage’s Form
8-k filed January 26, 2011

(*) Filed with this Form 10K/A



28







SIGNATURES



In accordance
with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



OSAGE EXPLORATION & DEVELOPMENT, INC.



|BY: | /S/ KIM BRADFORD    
|--- | --------------------
|    | Kim Bradford        
|    | President and C.E.O.



Dated: September 6, 2011



|BY: | /S/ KIM BRADFORD       
|--- | -----------------------
|    | Kim Bradford           
|    | Chief Financial Officer



Dated: September 6, 2011



Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.





|Signature         |  | Title                                       |  | Date             
|----------------- |  | ------------------------------------------- |  | -----------------
|/s/ KIM BRADFORD  |  | President, Chief Executive Officer, Chief   |  | September 6, 2011
|Kim Bradford      |  | Financial Officer and Chairman              |  |                  
|                  |  | (Principal Executive and Financial Officer) |  |                  
|                  |  |                                             |  |                  
|/s/ GREG FRANKLIN |  | Chief Geologist and Director                |  | September 6, 2011
|Greg Franklin     |  |                                             |  |                  
|                  |  |                                             |  |                  
|/s/ LARRY RAY     |  | Director                                    |  | September 6, 2011
|Larry Ray         |  |                                             |  |                  



29









OSAGE
EXPLORATION AND DEVELOPMENT, INC.

INDEX
TO FINANCIAL STATEMENTS



Set
forth below are the following consolidated financial statements for our company for the years ended December 31, 2010 and 2009:



|                                                                                                     | Page
|---------------------------------------------------------------------------------------------------- | ----
|                                                                                                     |     
|Report of Independent Accountant                                                                     | F-2 
|Consolidated Balance Sheets as of December 31, 2010 and 2009                                         | F-3 
|Consolidated Statements of Operations for Years Ended December 31, 2010 and
    2009                 | F-4 
|Consolidated Statements of Stockholders’ Equity (Deficit) for Years Ended December 31, 2010 and 2009 | F-5 
|Consolidated Statements of Cash Flows for Years Ended December 31, 2010 and
    2009                 | F-6 
|Notes to Consolidated Financial Statements                                                           | F-7 





F-1







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors
and Shareholders

Osage
Exploration and Development, Inc. and Subsidiaries

San
Diego, CA



We have audited the
accompanying consolidated balance sheets of Osage Exploration and Development, Inc. and Subsidiaries (Company), as of December
31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the
years ended December 31, 2010 and 2009. These consolidated financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the consolidated financial statements based on our audits.



We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the financial position of Osage
Exploration and Development, Inc. and Subsidiaries as of December 31, 2010, and the results of its operations and its cash flows
for the years ended December 31, 2010 and 2009, in conformity with accounting principles generally accepted in the United States
of America.



The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit
as of December 31, 2010. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.



|/s/ GKM, LLP       | 
|------------------ | 
|                   | 
|GKM, LLP           | 
|Encino, California | 
|March 18, 2011     | 



F-2







OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED
BALANCE SHEETS



|                                                                                                                                                                           |  | 2010 |             |   | 2009 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|ASSETS                                                                                                                                                                     |  |      |             |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Current Assets:                                                                                                                                                            |  |      |             |   |      |  
|Cash and equivalents                                                                                                                                                       |  | $    | 307,566     |   |      | $
|Accounts receivable                                                                                                                                                        |  |      | 74,678      |   |      |  
|Prepaid expenses                                                                                                                                                           |  |      | 39,441      |   |      |  
|Total Current Assets                                                                                                                                                       |  |      | 421,685     |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Property and Equipment, at cost:                                                                                                                                           |  |      |             |   |      |  
|Oil and gas properties and equipment (Successful Efforts Method)                                                                                                           |  |      | 2,818,833   |   |      |  
|Capitalized asset retirement costs                                                                                                                                         |  |      | 46,146      |   |      |  
|Other property & equipment                                                                                                                                                 |  |      | 54,861      |   |      |  
|                                                                                                                                                                           |  |      | 2,919,840   |   |      |  
|Less: accumulated depletion, depreciation and
    amortization                                                                                                             |  |      | (939,639    | ) |      |  
|                                                                                                                                                                           |  |      | 1,980,201   |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Bank CD pledged for Bond                                                                                                                                                   |  |      | 30,000      |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Total Assets                                                                                                                                                               |  | $    | 2,431,886   |   |      | $
|                                                                                                                                                                           |  |      |             |   |      |  
|LIABILITIES AND STOCKHOLDERS'
    EQUITY                                                                                                                                   |  |      |             |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Current Liabilities:                                                                                                                                                       |  |      |             |   |      |  
|Accounts payable                                                                                                                                                           |  | $    | 202,880     |   |      | $
|Accrued Expenses                                                                                                                                                           |  |      | 872,308     |   |      |  
|Current Maturity of Promissory Note                                                                                                                                        |  |      | —           |   |      |  
|Total Current Liabilities                                                                                                                                                  |  |      | 1,075,188   |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Liability for Asset Retirement Obligations                                                                                                                                 |  |      | 57,746      |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Total Liabilities                                                                                                                                                          |  |      | 1,132,934   |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Commitments and Contingencies                                                                                                                                              |  |      |             |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Stockholders' Equity:                                                                                                                                                      |  |      |             |   |      |  
|Common stock, $0.0001 par value, 190,000,000 shares authorized;
    46,649,775 and 46,959,775 shares issued and outstanding as of December 31, 2010 and 2009, respectively |  |      | 4,665       |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Additional-Paid-in-Capital                                                                                                                                                 |  |      | 11,795,844  |   |      |  
|Deferred Compensation                                                                                                                                                      |  |      | —           |   |      |  
|Stock Purchase Notes Receivable                                                                                                                                            |  |      | (95,000     | ) |      |  
|Accumulated Deficit                                                                                                                                                        |  |      | (10,093,679 | ) |      |  
|Accumulated Other Comprehensive Loss -                                                                                                                                     |  |      |             |   |      |  
|Currency Translation (Loss)                                                                                                                                                |  |      | (312,878    | ) |      |  
|Total Stockholders' Equity                                                                                                                                                 |  |      | 1,298,952   |   |      |  
|                                                                                                                                                                           |  |      |             |   |      |  
|Total Liabilities and Stockholders' Equity                                                                                                                                 |  | $    | 2,431,886   |   |      | $



The accompanying
notes are an integral part of these consolidated financial statements.



F-3









OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED
STATEMENT OF OPERATIONS



|                                                                                                                       |  | 2010 |            |   | 2009 |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Operating Revenues                                                                                                     |  |      |            |   |      |  
|Oil Sales                                                                                                              |  | $    | 1,468,070  |   |      | $
|Pipeline Sales                                                                                                         |  |      | 365,707    |   |      |  
|Total Operating Revenues                                                                                               |  |      | 1,833,777  |   |      |  
|                                                                                                                       |  |      |            |   |      |  
|Operating Costs and Expenses                                                                                           |  |      |            |   |      |  
|Operating Expenses                                                                                                     |  |      | 646,240    |   |      |  
|Asset Impairment                                                                                                       |  |      | —          |   |      |  
|Depreciation, Depletion and Accretion                                                                                  |  |      | 351,463    |   |      |  
|Stock Based Compensation Expense                                                                                       |  |      | 39,300     |   |      |  
|General and Administrative Expenses                                                                                    |  |      | 2,419,238  |   |      |  
|Total Operating Costs and Expenses                                                                                     |  |      | 3,456,241  |   |      |  
|                                                                                                                       |  |      |            |   |      |  
|Operating (Loss)                                                                                                       |  |      | (1,622,464 | ) |      |  
|                                                                                                                       |  |      |            |   |      |  
|Other Income (Expenses):                                                                                               |  |      |            |   |      |  
|Interest Income                                                                                                        |  |      | 3,071      |   |      |  
|Interest Expense                                                                                                       |  |      | (2,077     | ) |      |  
|(Loss) before Income Taxes                                                                                             |  |      | (1,621,470 | ) |      |  
|                                                                                                                       |  |      |            |   |      |  
|Provision for Income Taxes                                                                                             |  |      | —          |   |      |  
|                                                                                                                       |  |      |            |   |      |  
|Net (Loss)                                                                                                             |  |      | (1,621,470 | ) |      |  
|                                                                                                                       |  |      |            |   |      |  
|Other Comprehensive Income, net of tax:                                                                                |  |      |            |   |      |  
|Foreign Currency Translation Adjustment                                                                                |  |      | 99,308     |   |      |  
|Other Comprehensive Income                                                                                             |  |      | 99,308     |   |      |  
|                                                                                                                       |  |      |            |   |      |  
|Comprehensive (Loss)                                                                                                   |  | $    | (1,522,162 | ) |      | $
|                                                                                                                       |  |      |            |   |      |  
|Basic and Diluted Loss per Share                                                                                       |  | $    | (0.04      | ) |      | $
|                                                                                                                       |  |      |            |   |      |  
|Weighted average number of common share and common share equivalents used to compute basic and dilluted Loss per Share |  |      | 46,070,816 |   |      |  





The accompanying notes
are an integral part of these consolidated financial statements.



F-4







OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY



|                                             |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   | Accumulated  |   |             |               | 
|-------------------------------------------- |  | ------------ | ---------- | - | ---------- | - | ----- | ------- |  | - | --------------- | - |  | ----------- | -------- | - | ------------ | - | ----------- | ------------- | 
|                                             |  |              |            |   | Additional |   |       | Stock   |  |   |                 |   |  |             |          |   | Other        |   |             |               | 
|                                             |  | Common Stock |            |   |            |   |       | Paid-In |  |   | Purchase        |   |  | Accumulated |          |   | Deferred     |   |             | Comprehensive | 
|                                             |  | Shares       |            |   | Amount     |   |       | Capital |  |   | Note Receivable |   |  | Deficit     |          |   | Compensation |   |             | Loss          | 
|Balance at January 1, 2009                   |  |              | 40,959,775 |   |            | $ | 4,096 |         |  | $ | 11,336,613      |   |  | $           | (142,500 | ) |              | $ | (6,155,716  | )             | 
|                                             |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   |              |   |             |               | 
|Issuance of Shares for Professional Services |  |              | 750,000    |   |            |   | 75    |         |  |   | 47,925          |   |  |             |          |   |              |   |             |               | 
|Issuance of Shares to Lewis Energy           |  |              | 5,250,000  |   |            |   | 525   |         |  |   | 419,475         |   |  |             |          |   |              |   |             |               | 
|Deferred Compensation                        |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   |              |   |             |               | 
|Net (Loss) for the year                      |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   |              |   | (2,316,493  | )             | 
|Foreign Exchange Translation Adjustment      |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   |              |   |             |               | 
|Balance at December 31, 2009                 |  |              | 46,959,775 |   |            | $ | 4,696 |         |  | $ | 11,804,013      |   |  | $           | (142,500 | ) |              | $ | (8,472,209  | )             | 
|                                             |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   |              |   |             |               | 
|Issuance of Shares for Professional Services |  |              | 1,590,000  |   |            |   | 159   |         |  |   | 39,141          |   |  |             |          |   |              |   |             |               | 
|Cancellation of Shares of Former CEO         |  |              | (1,900,000 | ) |            |   | (190  | )       |  |   | (47,310         | ) |  |             | 47,500   |   |              |   |             |               | 
|Net (Loss) for the year                      |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   |              |   | (1,621,470  | )             | 
|Foreign Exchange Translation Adjustment      |  |              |            |   |            |   |       |         |  |   |                 |   |  |             |          |   |              |   |             |               | 
|Balance at December 31, 2010                 |  |              | 46,649,775 |   |            | $ | 4,665 |         |  | $ | 11,795,844      |   |  | $           | (95,000  | ) |              | $ | (10,093,679 | )             | 



The accompanying
notes are an integral part of these consolidated financial statements.



F-5







OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED
STATEMENT OF CASH FLOWS



|                                                                                        |  | 2010 |            |   | 2009 |  
|--------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                                                                        |  |      |            |   |      |  
|Cash flows from Operating Activities:                                                   |  |      |            |   |      |  
|Net (Loss)                                                                              |  | $    | (1,621,470 | ) |      | $
|Adjustments to reconcile net (loss) to net cash provided/(used) by operating activites: |  |      |            |   |      |  
|Asset Impairment                                                                        |  |      | —          |   |      |  
|Amortization of Deferred Compensation                                                   |  |      | —          |   |      |  
|Shares issued for services                                                              |  |      | 39,300     |   |      |  
|Accretion of Asset Retirment Obligation                                                 |  |      | 2,004      |   |      |  
|Provision for depletion, depreciation, amortization and valuation allowance             |  |      | 351,463    |   |      |  
|Changes in operating assets and liabitlies:                                             |  |      |            |   |      |  
|Decrease /(increase) in accounts receivable                                             |  |      | 146,675    |   |      |  
|Decrease in other current assets                                                        |  |      | —          |   |      |  
|(Increase)/decrease in prepaid expenses                                                 |  |      | (2,061     | ) |      |  
|Increase in accounts payable and accrued expenses                                       |  |      | 745,052    |   |      |  
|Net cash (used)/provided by operating activities                                        |  |      | (339,037   | ) |      |  
|                                                                                        |  |      |            |   |      |  
|Cash flows used in Investing Activities:                                                |  |      |            |   |      |  
|Asset Retirement Obligation                                                             |  |      | —          |   |      |  
|Reimbursement by Pacific for Pipeline                                                   |  |      | 154,289    |   |      |  
|Assignment of Rosablanca                                                                |  |      | —          |   |      |  
|Reimbursement by LEC for RB#1 and #2                                                    |  |      | —          |   |      |  
|Investments in Oil & Gas Properties                                                     |  |      | (675,039   | ) |      |  
|Investment in CD pledged for letter of credit                                           |  |      | —          |   |      |  
|Purchase of Non Oil & Gas property                                                      |  |      | (6,656     | ) |      |  
|Interest earned on Bank CD pledged for Letter of Credit                                 |  |      | —          |   |      |  
|Payments from/ (into) Colombian Trust Account                                           |  |      | —          |   |      |  
|Net cash (used) by investing activities                                                 |  |      | (527,406   | ) |      |  
|                                                                                        |  |      |            |   |      |  
|Cash flows provided by Financing Activities:                                            |  |      |            |   |      |  
|Payments on Promissory Notes                                                            |  |      | (3,535     | ) |      |  
|Net cash (used)/provided by financing activities                                        |  |      | (3,535     | ) |      |  
|                                                                                        |  |      |            |   |      |  
|Effect of exchange rate on cash and equivalents                                         |  |      | 2,555      |   |      |  
|                                                                                        |  |      |            |   |      |  
|Net increase (decrease) in cash and equivalents                                         |  |      | (867,423   | ) |      |  
|                                                                                        |  |      |            |   |      |  
|Cash and equivalents beginning of year                                                  |  | $    | 1,174,989  |   |      | $
|                                                                                        |  |      |            |   |      |  
|Cash and equivalents at end of year                                                     |  | $    | 307,566    |   |      | $
|                                                                                        |  |      |            |   |      |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                     |  |      |            |   |      |  
|Cash Payment for Interest                                                               |  | $    | 74         |   |      | $
|Cash Payment for Taxes                                                                  |  | $    | 1,127      |   |      | $
|                                                                                        |  |      |            |   |      |  
|Non-Cash Transactions:                                                                  |  |      |            |   |      |  
|Forgiveness of accounts payable by Lewis Energy Corporation                             |  | $    | —          |   |      | $
|Forgiveness of Joint Operating Account Liabilities by Pacific Rubiales Energy Corp.     |  | $    | —          |   |      | $
|Issuance of Shares to Lewis Energy Corporation                                          |  | $    | —          |   |      | $
|Forgiveness of accounts payable by various vendors relating to Rosablanca               |  | $    | —          |   |      | $



The accompanying
notes are an integral part of these consolidated financial statements.



F-6







OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

For
the Years ended December 31, 2010 and 2009



1. ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



NATURE OF OPERATIONS
AND BUSINESS COMBINATION



Osage Exploration and
Development, Inc. ("Osage" or "the Company") is an independent energy company engaged primarily in the acquisition,
development, production and the sale of oil, gas and natural gas liquids. The Company's production activities are located in the
country of Colombia and in the state of Oklahoma. The principal executive offices of the Company are located at 2445 Fifth Avenue,
Suite 310, San Diego, CA 92101. Osage was organized September 9, 2004 as Osage Energy Company, LLC, (“Osage LLC”)
an Oklahoma limited liability company. On April 24, 2006 we merged with a non-reporting, Nevada corporation trading on the pink
sheets, Kachina Gold Corporation, which was the entity that survived the merger, through the issuance of 10,000,000 shares of
our Common Stock. The merger has been accounted for as a recapitalization of Osage LLC rather than a business combination. Accordingly,
no pro forma disclosure is made. The historical financial statements are those of Osage LLC.



The Nevada shell corporation
was incorporated under the laws of Canada on February 24, 2003 as First Mediterranean Gold Resources, Inc. The domicile of the
Company was changed to the State of Nevada on May 11, 2004. On May 24, 2004, the name of the Company was changed to Advantage
Opportunity Corp. On March 4, 2005, the Company changed its name to Kachina Gold Corporation (“KGC”). On April 24,
2006 Kachina Gold Corporation merged with Osage Energy Company, LLC, and on May 15, 2006 changed its name to Osage Energy Corporation.
On July 2, 2007, the Company changed its name to Osage Exploration and Development, Inc. and changed its domicile to the State
of Delaware. On February 27, 2008, the Company’s common stock began trading on the Over-the-Counter Bulletin Board under
the symbol “OEDV.OB.”



The Company has incurred
significant losses and had negative cash flow from operations in each of the last three years and has an accumulated deficit of
$10,093,679 at December 31, 2010 and $8,472,209 at December 31, 2009. Substantial portions of the losses are attributable to stock
based compensation expense, asset impairment charges relating to the Rosablanca concession and interest expense. The Company's
operating plans require additional funds that may take the form of debt or equity financings. There can be no assurance that any
additional funds will be available. The Company's ability to continue as a going concern is in substantial doubt and is dependent
upon achieving a profitable level of operations and obtaining additional financing.



Management of our Company
has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months
and beyond. These steps include (a) raising additional capital and/or obtaining financing ; (b) increasing our current production;
and (c) controlling overhead and expenses.



There is no assurance
the Company can successfully accomplish these steps and it is uncertain the Company will achieve a profitable level of operations
and obtain additional financing. There can be no assurance that any additional financings will be available to the Company on
satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required
to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition
in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.



These consolidated
financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as
a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course
of business and at amounts different from those reflected in the accompanying consolidated financial statements.



F-7







BASIS OF CONSOLIDATION



The consolidated financial
statements include the accounts of Osage and its wholly owned subsidiaries, Osage Energy Company, LLC and Cimarrona, LLC. Accordingly,
all references herein to Osage or the Company include the consolidated results. All significant inter-company accounts and transactions
were eliminated in consolidation.



RISK FACTORS RELATED
TO CONCENTRATION OF SALES AND PRODUCTS



The Company's future
financial condition and results of operations will depend upon prices received for its oil and natural gas and the costs of finding,
acquiring, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to changes
in supply, market uncertainty and a variety of other factors beyond the Company's control. These factors include worldwide political
instability (especially in the Middle East), the foreign supply of oil and natural gas, the price of foreign imports, the level
of consumer product demand and the price and availability of alternative fuels.



USE OF ESTIMATES



The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Management used significant estimates in determining
the carrying value of its oil and gas producing assets and the associated depreciation and depletion expense related to sales'
volumes. The significant estimates included the use of proved oil and gas reserve volumes and the related present value of estimated
future net revenues there-from (See Note 16: Supplemental Information About Oil and Gas Producing Activities).



CASH AND EQUIVALENTS



Cash and equivalents
consist of short-term, highly liquid investments readily convertible into cash with an original maturity of three months or less.



FAIR VALUE OF FINANCIAL
INSTRUMENTS



The Company measures
its financial assets and liabilities in accordance with US GAAP. For certain of the Company's financial instruments, including
accounts receivable (trade and related party), notes receivable and accounts payable (trade and related party), and accrued expenses,
the carrying amounts approximate fair value due to their short maturities. The amounts owed for notes payable also approximate
fair value because interest rates and terms offered to the Company are at current market rates.



CONCENTRATION OF CREDIT
RISK



Financial instruments
that potentially subject the Company to concentrations of credit risk are: cash and accounts receivable arising from its normal
business activities. The Company places its cash in what it believes are credit-worthy financial institutions. However, the Company’s
cash balances have exceeded the FDIC insured levels at various times during 2010 and 2009. At December 31, 2010 and 2009, the
Company had $0 and $571,515 in cash in excess of federally insured limits, respectively. The Company maintains cash accounts only
at large, high quality financial institutions and believes the credit risk associated with cash held in back exceeding the FDIC
insured levels is remote.



F-8







In the U.S., the Company
currently sells all of its oil production to one customer, Sunoco, Inc. In Colombia, the Company currently sells all of its oil
production to one customer, Hocol, S.A. and has only one customer for its pipeline, Pacific Rubiales Energy Corp. (“Pacific”)
However, the Company believes it can sell all its production to many different purchasers, most of whom pay similar prices that
vary with the international spot market prices. The Company controls credit risk related to accounts receivable through credit
approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and,
based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence,
believes that its accounts receivable credit risk exposure beyond such allowance is limited. The Company had no allowance as of
December 31, 2010 and 2009. The analysis was based on its evaluation of specific customers' balances and the collectability thereof.



OIL AND GAS PROPERTIES



Osage is an exploration
and production oil and natural gas company with proved reserves and existing production in Oklahoma and in the country of Colombia.
In 2005, we purchased 100% of the working interest in certain producing oil and natural gas leases located in Osage County, Oklahoma,
referred to herein as the Osage Property, which property consists of twenty three wells, ten of which are producing, on 480 acres.
We are the operators of this property.



In June 2007, we entered
into an agreement (the “Agreement”) with Gold Oil, Plc (“Gold”) and Empesa Petrolera de Servicios y Asesorias,
S.A. (“Empesa), whereby we farmed-in to the approximately 165 square mile Rosablanca concession in Colombia awarded by the
Agencia Nacional de Hidrocarburos (“ANH”) to Gold in June, 2007. Under the Agreement, we are considered the operators
of the concession and will pay all costs associated with drilling and testing of the first well on the Rosablanca project. Revenues
generated from the first well were to be allocated 50% to us, 40% to Gold and 10% to Empesa. In March 2009, we entered into an
agreement (the “LEC Agreement”) with Lewis Energy (“LEC”) whereby LEC shall provide all of the capital
required to drill the first well, up to a maximum of $3,500,000. As part of the $3,500,000 maximum investment amount by LEC, LEC
has also agreed to reimburse us for certain amounts we have already spent on the first well. Under the LEC Agreement, we assigned
Lewis 50% of our 50% interest in the Rosablanca concession and have made LEC the operator. In addition, LEC shall recoup two times
its investment in the first well before Osage receives any cash flow derived from the first well. Furthermore, as part of the
LEC Agreement, we issued 5,250,000 shares of our common stock to an affiliate of LEC. As a result of the LEC transaction, revenues
and investments on all future wells in Rosablanca will be allocated 40% to Gold, 25% to LEC, 25% to us and 10% to Empesa. If any
party doesn’t contribute its share of the costs, its revenue interest will automatically be transferred to the party that
provides the capital. On March 23, 2009, we announced we completed testing on the first well without finding producible hydrocarbons
in any of the zones evaluated. In September 2009, we entered into the Termination Agreement with Gold, EMPESA and Lewis, whereby
we and Lewis withdrew from the Rosablanca concession. Therefore, we have written off our entire investment in the Rosablanca concession
as of December 31, 2009.



On April 8, 2008,
we entered into a membership interest purchase agreement (the “Purchase Agreement”) with Sunstone Corporation (“Sunstone”)
pursuant to which we acquired from Sunstone 100% of the membership interests in Cimarrona Limited Liability company, an Oklahoma
limited liability company (“Cimarrona LLC”). Cimarrona LLC is the owner of a 9.4% interest in certain oil and gas
assets in the Guaduas field, located in the Dindal and Rio Seco Blocks that consist of twenty one wells, of which seven are currently
producing, that covers 30,665 acres in the Middle Magdalena Valley in Colombia as well as a pipeline with a current capacity of
approximately 30,000 barrels of oil per day. The Purchase Agreement was effective as of April 1, 2008.



The purchase price
consisted of 2,750,000 shares of the Company’s common stock and a warrant to purchase 1,125,000 shares of the Company’s
common stock exercisable at $1.25 per share and expiring April 8, 2013. In addition, we issued 50,000 shares of common stock to
Energy Capital Solutions, LP for their role as financial advisor and $22,500 to an individual, as a finder’s fee.



F-9







The Cimarrona property,
but not the pipeline, is subject to an Ecopetrol Association Contract (the “Association Contract”) whereby we pay
Ecopetrol S.A. (“Ecopetrol”) royalties of 20% of the oil produced. The royalty amount is paid in oil. In addition
to the royalty, according to the Association Contract, Ecopetrol may, for no consideration, become a 50% partner, once an audit
of revenues and expenses indicate that the partners in the Association Contract have a received a 200% reimbursement of all historical
costs to develop and operate the Guaduas field. We believe that Ecopetrol could become a 50% partner in 2011 which would effectively
reduce our cash flows by 50%. In addition, in 2022, the Association Contract with Ecopetrol terminates, at which time we will
have no economic interest remaining in this property. The property and the pipeline are both operated by Pacific, which owns 90.6%
of the Guaduas field. Pipeline revenues generated from Cimarrona primarily relate to transportation costs charged to third party
oil producers, including Pacific.



In 2010, the Company
began to acquire oil and gas leases in Logan County, Oklahoma targeting the Mississippian formation. The Mississippian formation
is located on the Anadarko Shelf in northern Oklahoma and south-central Kansas. The top of this expansive carbonate hydrocarbon
system is encountered between 4,000 and 6,000 feet and lies stratigraphically between the Pennsylvanian-aged Morrow Sand and the
Devonian-aged Woodford Shale formations. The Mississippian formation may reach 1,000 feet in gross thickness and the targeted
porosity zone is between 50 and 100 feet in thickness. The formation’s geology is well understood as a result of the thousands
of vertical wells drilled and produced there since the 1940s. Beginning in 2007, the application of horizontal cased-hole drilling
and multi-stage hydraulic fracturing treatments have demonstrated the potential for extracting significant additional quantities
of oil and natural gas from the formation. As of December 31, 2010, the Company has acquired oil and gas leases covering approximately
5,364 acres for a total cost of $593,464. The Company intends to focus most of its efforts and resources in 2011 on acquiring
additional leases and attempting to find a partner in order to develop this acreage.



The Company follows
the "successful efforts" method of accounting its oil and gas exploration and development activities, as set forth in
the Statement of Financial Accounting Standards (“SFAS”) No. 19, as codified by FASB ASC topic 932. Under this method,
the Company initially capitalizes expenditures for oil and gas property acquisitions until they are either determined to be successful
(capable of commercial production) or unsuccessful. The carrying value of all undeveloped oil and gas properties is evaluated
periodically and reduced if such carrying value appears to have been impaired. Leasehold costs relating to successful oil and
gas properties remain capitalized while leasehold costs which have been proved unsuccessful are charged to operations in the period
the leasehold costs are proved unsuccessful. Costs of carrying and retaining unproved properties are expensed as incurred.



The costs of drilling
and equipping development wells are capitalized, whether the wells are successful or unsuccessful. The costs of drilling and equipping
exploratory wells are capitalized until they are determined to be either successful or unsuccessful. If the wells are successful,
the costs of the wells remain capitalized. If, however, the wells are unsuccessful, the capitalized costs of drilling the wells,
net of any salvage value, are charged to operations in the period the wells are determined to be unsuccessful.



The provision for depreciation
and depletion of oil and gas properties is computed by the unit-of-production method. Under this method, the Company computes
the provision by multiplying the total unamortized costs of oil and gas properties including future development, site restoration,
and dismantlement abandonment costs, but excluding costs of unproved properties by an overall rate determined by dividing the
physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves. This calculation
is done on a country-by-country basis. As of December 31, 2010 and 2009, the Company's oil production operations are conducted
in the United States of America and in the country of Colombia. The cost of unevaluated properties not being amortized, to the
extent there is such a cost, is assessed quarterly to determine whether the value has been impaired below the capitalized cost.
The costs associated with unevaluated properties relate to projects which were undergoing exploration or development activities
or in which the Company intends to commence such activities in the future. The Company will begin to amortize these costs when
proved reserves are established or impairment is determined. Management believes no such impairment exists at December 31, 2010
and 2009.

F-10







In accordance with
SFAS No. 143, "Accounting for Asset Retirement Obligations", as codified by FASB ASC topic 410, the Company reports
a liability for any legal retirement obligations on its oil and gas properties. The asset retirement obligations represent the
estimated present value of the amounts expected to be incurred to plug, abandon, and remediate the producing properties at the
end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of
the property surrounding. The Company determines the asset retirement obligations by calculating the present value of estimated
cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value
as of the asset's inception, with an offsetting increase to producing properties. Periodic accretion of the discount related to
the estimated liability is recorded as an expense in the statement of operations.



The estimated liability
is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of
these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result
in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded
with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and
accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the
costs to ultimately retire the Company's wells may vary significantly from prior estimates.



OTHER PROPERTY AND
EQUIPMENT



Non-oil and gas producing
properties and equipment are stated at cost; major renewals and improvements are charged to the property and equipment accounts;
while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed currently.
At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts
are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to operations.



Depreciation for non-oil
and gas properties is recorded on the straight-line method at rates based on estimated useful lives ranging from three to fifteen
years of the assets.



IMPAIRMENT OF LONG-LIVED
ASSETS



Effective January 1,
2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), as codified by the FASB ASC topic 360 (“ASC 360”), which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30,
“Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates
the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets
to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. In 2009,
the Company wrote-off its entire investment in the Rosablanca concession of $1,900,248. Based on further review, the Company believes
that, for the year ended December 31, 2010 and 2009, there were no significant impairments of its long-lived assets.



REVENUE RECOGNITION



The Company recognizes
revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by
the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed
sales price has been included in such invoice, and (iv) collection from such customer is probable.



F-11







STOCK BASED COMPENSATION



The Company accounts
for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement
No. 123”, as codified by FASC ASC topic 718. The Company recognizes in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to employees and non-employees. For stock-based awards the value is
based on the market value for the stock on the date of grant and if the stock has restrictions as to transferability a discount
is provided for lack of tradability. Stock option awards are valued using the Black-Scholes option-pricing model. For shares issued
for services or property, the value is based on the market value for the stock on the date of grant.



In 2010, we issued
a total of 90,000 shares to a consultant, 500,000 shares to a board member and 1,000,000 shares to an officer of the Company in
conjunction with a new employment agreement. All of the shares vested immediately and were recorded as stock based compensation
expense in 2010 and valued at the stock price at the time of issuance with a total value of $39,300. In 2009, we issued a total
of 750,000 shares to four consultants. All of the shares vested immediately and were recorded as stock based compensation expense
in 2009 and valued at the stock price at the time of issuance with a total value of $48,000. In 2007, we issued 2,600,000 shares
of restricted stock to two officers of the Company in connection with their employment agreements. The shares were valued at the
stock price at the time of issuance. As the shares vested on January 1, 2009, we recorded compensation expense of $0 and $7,493
in 2010 and 2009, respectively, for these shares.



IMPACT OF RECENT ACCOUNTING
PRONOUNCEMENTS



Recent Pronouncements



In June 2009, the FASB
issued Financial Accounting Standard No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles – a replacement of FASB Statement No. 162” (FAS 168). In addition in September
2009, the FASB issued Accounting Standards Update No. 2009-01, “Topic 205 – Generally Accepted Accounting Principles
- amendments based on Statement of Financial Accounting Standards No. 168 – The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles” (ASU 2009-1). Both FAS 168 and ASU 2009-1 recognize the FASB
Accounting Standards Codification as the source of authoritative U.S. GAAP to be utilized by nongovernmental entities. FAS 168
and ASU 2009-1 are effective for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement
did not have a material impact on the Company’s financial statements.



In December 2007, the
FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements", which is an amendment of
Accounting Research Bulletin ("ARB") No. 51, as codified in FASB ASC topic 810 (“ASC 810”). ASC 810 clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. ASC 810 changes the way the consolidated income statement is presented, thus
requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling
interest. ASC 810 is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December
15, 2008. The adoption of ASC 810 did not have a material impact on the Company’s financial statements.



In March 2008, the
FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities,” as codified by FASB ASC
topic 815 (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities.
The adoption of ASC 815 did not have a material impact on the Company’s financial statements.



In May 2008, the FASB
issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60,"
as codified by FASB ASC topic 944 (“ASC 944”). The scope of ASC 944 is limited to financial guarantee insurance (and
reinsurance) contracts, as described in this Statement, issued by enterprises included within the scope of Statement 60. Accordingly,
ASC 944 does not apply to financial guarantee contracts issued by enterprises excluded from the scope of Statement 60 or to some
insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage
guaranty insurance or credit insurance on trade receivables), ASC 944 also does not apply to financial guarantee insurance contracts
that are derivative instruments included within the scope of FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as codified by FASB ASC topic 815. The adoption of ASC 944 did not have a material impact on the
Company's financial statements.



F-12







In May 2009, the
FASB issued FASB No. 165, “Subsequent Events” (“SFAS 165”), as codified by FASB ASC topic
855(“ASC 855”). ASC 855 establishes general standards of accounting for disclosing events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the
date the financial statements were issued or were available to be issued. ASC 855 is effective for interim or annual financial
periods ending after September 15, 2009. The adoption of ASC 855 did not have a material impact on the Company.



In June 2009, the FASB
issued FASB No. 166, “Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140”(“SFAS 166”), as codified by FASB ASC topic 860 (“ASC 860”). ASC 860 requires additional disclosures
about the transfer and derecognition of financial assets and eliminates the concept of qualifying special-purpose entities under
SFAS 140. ASC 860 is effective for fiscal years beginning after November 15, 2009. The adoption of ASC 860 did not have a
material impact on the Company.



In June 2009, the FASB
issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”(“SFAS 167”). SFAS
167 amends certain requirements of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable
Interest Entities”, as codified by FASC ASC topic 810 (“ASC 810”) to improve financial reporting by enterprises
involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.
This Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The adoption of ASC 810 did not have a material impact on the Company.



In January 2010, the
FASB issued revised authoritative guidance that requires more robust disclosures about the different classes of assets and liabilities
measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers
between Levels 1, 2 and 3. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009
(which is January 1, 2010 for the Company) except for the disclosures about purchases, sales, issuances, and settlements in the
roll forward activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December
15, 2010, and for interim periods within those fiscal years (which is January 1, 2011 for the Company). Early application is encouraged.
The revised guidance was adopted as of January 1, 2010. The adoption of this guidance did not have a material impact on the Company’s
consolidated financial position, results of operations or cash flows.



All new accounting
pronouncements issued but not yet effective have been deemed to not be applicable, hence the adoption of these new standards is
not expected to have a material impact on the consolidated financial statements.



INCOME TAXES



On January 1, 2008,
the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” as
codified by FASB ASC topic 740 (“ASC 740”). As a result of the implementation of ASC 740, the Company made a comprehensive
review of its portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation
of ASC 740, the Company recognized no material adjustments to liabilities or stockholders equity.



F-13







When tax returns are
filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others
are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax
benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing
authorities upon examination.



Interest associated
with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative
expenses in the statements of income.



We
did not have a provision for income taxes for 2010 or 2009. Due to a history of operating losses, the Company records a full valuation
allowance against its net deferred tax assets and therefore recorded no tax provision related to its US operations for the current
period.

EARNINGS PER SHARE



The Company uses SFAS
No. 128, "Earnings Per Share", as codified by FASB ASC topic 260, for calculating the basic and diluted earnings (loss)
per share. Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the
weighted average number of common shares outstanding during the year. Due to the net loss reported by the Company, the effect
of including shares attributable to the exercise of warrants would have been antidilutive. Common stock equivalents are excluded
from the calculation when a loss is incurred as their effect would be anti-dilutive.



2. EQUITY TRANSACTIONS



Cimarrona Acquisition

On April 8, 2008,
we entered into the Purchase Agreement with Sunstone pursuant to which the Company acquired from Sunstone 100% of the membership
interests in Cimarrona LLC, the owner of a 9.4% interest in certain oil and gas assets in the Guaduas field, located in the Dindal
and Rio Seco Blocks that cover 30,665 acres in the Middle Magdalena Valley in Colombia. The Purchase Agreement was effective as
of April 1, 2008. The purchase price consisted of 2,750,000 shares of the Company’s Common Stock and a warrant to purchase
1,125,000 shares of the Company’s Common Stock exercisable at $1.25 per share and expiring April 8, 2013. In addition, the
Company issued 50,000 shares of Common Stock to a financial advisor and $22,500 to an unaffiliated individual as a finder’s
fee.



Lewis Energy Colombia,
Inc.

In March 2009, we entered
into the LEC Agreement, whereby LEC agreed to provide $3,500,000, to drill the first well and become operator of Rosablanca in
return for a 50% assignment of our 50% operating interest in Rosablanca. In addition, LEC was entitled to recoup two times its
investment in the first well before Osage receives any cash flow from the first well. The transaction was recorded in accordance
with paragraph 47(c) SFAS 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies,” as codified
in FASB ASC section 932-360-55. Furthermore, as part of the LEC Agreement, we issued 5,250,000 shares of our Common Stock to an
affiliate of LEC. As a result of the LEC transaction, revenues and investments on all future wells in Rosablanca were to be allocated
40% to Gold, 25% to LEC, 25% to us and 10% to Empesa. We recognized no gain or loss on the assignment of our interest. In March
2009, we announced we completed testing on the first well without finding producible hydrocarbons in any of the zones evaluated.
In September 2009, we entered into the Termination Agreement with Gold, EMPESA and Lewis, whereby we and Lewis agreed to withdraw
from the Rosablanca concession



F-14







3. GEOGRAPHICAL INFORMATION



The following table
sets forth revenues and assets by geographical locations for the periods reported:



|                              |  | Colombia |           |   | United States |   |         | Consolidated | 
|----------------------------- |  | -------- | --------- | - | ------------- | - | ------- | ------------ | 
|Year ending December 31, 2010 |  |          |           |   |               |   |         |              | 
|Total Revenues                |  |          | 1,735,507 |   |               |   | 98,270  |              | 
|% of Total                    |  |          | 94.6      | % |               |   | 5.4     | %            | 
|                              |  |          |           |   |               |   |         |              | 
|Long Lived Assets             |  | $        | 2,060,021 |   |               | $ | 859,819 |              | 
|% of Total                    |  |          | 70.6      | % |               |   | 29.4    | %            | 
|                              |  |          |           |   |               |   |         |              | 
|Year ending December 31, 2009 |  |          |           |   |               |   |         |              | 
|Total Revenues                |  | $        | 2,722,243 |   |               | $ | 92,155  |              | 
|% of Total                    |  |          | 96.7      | % |               |   | 3.3     | %            | 
|                              |  |          |           |   |               |   |         |              | 
|Long Lived Assets             |  | $        | 2,053,820 |   |               | $ | 215,324 |              | 
|% of Total                    |  |          | 90.5      | % |               |   | 9.5     | %            | 



4. OIL AND GAS PROPERTIES



Oil and gas properties
consisted of the following as of December 31, 2010 and December 31, 2009:



|                                       |  | 2010 |           |   | 2009 |  
|-------------------------------------- |  | ---- | --------- | - | ---- | -
|                                       |  |      |           |   |      |  
|Properties subject to amortization     |  | $    | 2,225,369 |   |      | $
|Properties not subject to amortization |  |      | 593,464   |   |      |  
|Capitalized asset retirement costs     |  |      | 46,146    |   |      |  
|                                       |  |      |           |   |      |  
|Accumulated depreciation and depletion |  |      | (897,833  | ) |      |  
|                                       |  |      |           |   |      |  
|Oil & Gas Properties, Net              |  | $    | 1,967,146 |   |      | $



Depreciation and depletion
expense for oil and gas properties totaled $340,979 and $343,996 in 2010 and 2009, respectively.



5. COLOMBIAN DEPOSITS



In August 2007, we
(i) paid $1,200,000 to Gold representing funds that Gold had previously issued to a trust established by the ANH to use for drilling
the first well for the Rosablanaca concession and (ii) issued a letter of credit of $144,000 for the benefit of Gold’s bank
in Colombia representing the guarantee required by the ANH. We were obligated to commence drilling on the first well by December
26, 2008, which we have done. As of December 31, 2008, we had a balance of $537,665 in the trust account. Under the terms of the
concession agreement with the ANH, we are required to perform six phases, with each phase lasting 12 months. We have already performed
the first phase which was to drill the first well. Each phase requires us to fund a new trust account and issue a letter of credit
as well as perform certain tasks. Phase 2 required an establishment of a trust account for $790,000, of which our share is $197,500,
and an issuance of a letter of credit in the amount of $110,000, of which our share is $25,000 and obligated us to perform certain
seismic work. In the first quarter of 2009, we funded both the trust account and the letter of credit. As we withdrew from the
concession in 2009, we wrote off all of the remaining balance in the trust account as of December 31, 2009.



F-15







6. PROMISSORY NOTE



On April 27, 2007,
we purchased a truck to be used by our pumper in our Oklahoma properties by issuing a promissory note (the “Promissory Note”)
to a bank secured by the truck. The Promissory Note had a balance of $3,535 as of December 31, 2009, a variable interest rate
of Prime plus 1.0% and monthly principal and interest payments totaling $366. The Promissory Note matured and was paid off on
October 27, 2010.



7. COMMITMENTS AND
CONTINGENCIES



ENVIRONMENT



Osage, as owner and
operator of oil and gas properties, is subject to various federal, state, and local laws and regulations relating to discharge
of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on
the owner of real property and the lessee under oil and gas leases for the cost of pollution clean-up resulting from operations,
subject the owner/lessee to liability for pollution damages and impose restrictions on the injection of liquids into subsurface
strata.



Although Company environmental
policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasing stringent
regulations could require the Company to make additional unforeseen environmental expenditures



The Company maintains
insurance coverage that it believes is customary in the industry, although it is not fully insured against all environmental risks.



The Company is not
aware of any environmental claims existing as of December 31, 2010, that would have a material impact on its consolidated financial
position or results of operations. There can be no assurance, however, that current regulatory requirements will not change, or
past non-compliance with environmental laws will not be discovered on the Company's property.



LAND RENTALS AND OPERATING
LEASES



In February 2008, the
Company entered into a 36 month lease for its corporate offices in San Diego. The lease, including parking, was initially for
$3,682 per month for the first year, increasing to $3,800 and $3,923 in the second and third year respectively. The lease was
guaranteed by Mr. Bradford, our President, CEO and CFO. No compensation was given to Mr. Bradford for his guarantee. In addition,
the Company is responsible for all operating expenses and utilities. In February 2011, the Company amended the lease for another
three years with initial payments of $3,488 per month for the first year, increasing to $3,599 and $3,715 in the second and third
year, respectively. The amended lease released Mr. Bradford of his guarantee, but required the Company to increase its security
deposit from $3,381 to $10,000, with $3,299 and $3,415 of the security deposit to be applied to months 13 and 25, respectively,
of the lease. Outside of the San Diego lease, the Company’s Oklahoma office and all equipment leased are under month-to-month
operating leases.



Rental expense charged
to operations totaled $56,305 and $53,093 in 2010 and 2009, respectively.



LEGAL PROCEEDINGS



The Company is not
a party to any litigation that has arisen in the normal course of its business and that of its subsidiaries.



F-16







8. DILUTIVE SECURITIES



As of December 31,
2010 and 2009, the Company had outstanding dilutive securities, consisting entirely of warrants. Changes in warrants outstanding
are as follows:



|                          |  |        |            |   | Weighted Average |   |      | Average Remaining | 
|------------------------- |  | ------ | ---------- | - | ---------------- | - | ---- | ----------------- | 
|                          |  | Shares |            |   | Exercise  Price  |   |      | Contractual  Life | 
|Balance December 31, 2008 |  |        | 3,981,917  |   |                  | $ | 1.34 |                   | 
|Granted                   |  |        | —          |   |                  | $ | —    |                   | 
|Exercised                 |  |        | —          |   |                  | $ | —    |                   | 
|Cancelled or Expired      |  |        | (369,417   | ) |                  | $ | 2.26 |                   | 
|Balance December 31, 2009 |  |        | 3,612,500  |   |                  | $ | 1.25 |                   | 
|Granted                   |  |        | —          |   |                  | $ | —    |                   | 
|Exercised                 |  |        | —          |   |                  | $ | —    |                   | 
|Cancelled or Expired      |  |        | (1,387,500 | ) |                  | $ | 1.25 |                   | 
|Balance December 31, 2010 |  |        | 2,225,000  |   |                  | $ | 1.25 |                   | 



9. INCOME TAXES



The total provision
for income taxes consists of the following in 2010 and 2009 (in thousands):



|                    |  | Year Ended December 31, |     
|------------------- |  | ----------------------- | ----
|                    |  |                         | 2010
|Current Taxes:      |  |                         |     
|Federal             |  | $                       | —   
|State               |  |                         | —   
|Foreign             |  |                         | —   
|                    |  |                         | —   
|                    |  |                         |     
|Deferred Taxes:     |  |                         |     
|Federal             |  |                         | 520 
|State               |  |                         | 42  
|Foreign             |  |                         | —   
|                    |  |                         |     
|Valuation Allowance |  |                         | (562
|                    |  |                         | —   
|                    |  |                         |     
|Totals              |  | $                       | —   



F-17







Following is a reconciliation
of the Federal statutory rate to the effective income tax rate for 2010 and 2009:



|                                                  |  | 2010 |       |   | 2009 | 
|------------------------------------------------- |  | ---- | ----- | - | ---- | 
|Computed tax provision at statutory Federal rates |  |      | 34.0  | % |      | 
|Increase (decrease) in taxes resulting from:      |  |      |       |   |      | 
|State taxes, net of Federal income tax benefit    |  |      | 2.9   | % |      | 
|Nondeductible and other expenses                  |  |      | -0.3  | % |      | 
|Federal and State true ups                        |  |      | -1.1  | % |      | 
|Valuation Allowance                               |  |      | -35.5 | % |      | 
|                                                  |  |      | 0.0   | % |      | 



At December 31, 2010,
the Company had net operating loss carry forwards of approximately $11 million which expire at various dates through 2030.



Deferred tax assets
and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes. Significant components of Osage’s deferred tax assets
and liabilities are as follows at December 31, 2010 and December 31, 2009 (in thousands):



|                                 |  | 2010 |        |   | 2009 |  
|-------------------------------- |  | ---- | ------ | - | ---- | -
|Deferred tax liability:          |  |      |        |   |      |  
|                                 |  |      |        |   |      |  
|Net operating loss carry forward |  | $    | 2,272  |   |      | $
|Other                            |  |      | 1,124  |   |      |  
|                                 |  |      |        |   |      |  
|Valuation allowance              |  |      | (3,396 | ) |      |  
|Net deferred tax liability       |  |      | —      |   |      |  



The non-current portions
of the deferred tax asset and the deferred tax liability accounts offset each other in the Company's consolidated balance sheet.



10. MAJOR CUSTOMERS



During 2010 and 2009,
the Company had three customers that accounted for all of its sales.





|        |  | 2010  Revenues |           |  | 2009  Revenues | 
|------- |  | -------------- | --------- |  | -------------- | 
|Hocol   |  | $              | 1,369,800 |  |                | 
|Pacific |  |                | 365,707   |  |                | 
|Sunoco  |  |                | 98,270    |  |                | 
|Totals  |  | $              | 1,833,777 |  |                | 

|
|
|
|
|
|



11. ASSET RETIREMENT
OBLIGATIONS



The Company recognizes
a liability at discounted fair value for the future retirement of tangible long-lived assets and associated assets retirement
cost associated with the petroleum and natural gas properties. The fair value of the liability is capitalized as part of the cost
of the related asset and amortized to expense over its useful life. The liability accretes until the date of expected settlement
of the retirement obligations. The related accretion expense is recognized in the statement of operations. The provision will
be revised for the effect of any changes to timing related to cash flow or undiscounted abandonment costs. Actual expenditures
incurred for the purpose of site reclamation are charged to the asset retirement obligations to the extent that the liability
exists on the balance sheet. Differences between the actual costs incurred and the fair value of the liability recorded are recognized
in income in the period the actual costs are incurred.



F-18







There are no legally
restricted assets for the settlement of asset retirement obligations. No income tax is applicable to the asset retirement obligation
as of December 31, 2010 and 2009, because the Company records a valuation allowance on deductible temporary differences due to
the uncertainty of its realization. A reconciliation of the Company's asset retirement obligations from the periods presented
is as follows:



|                           |  | 2010 |        |  | 2009 |  
|-------------------------- |  | ---- | ------ |  | ---- | -
|Beginning Balance          |  | $    | 55,742 |  |      | $
|Incurred during the period |  |      | —      |  |      |  
|Additions for new wells    |  |      | —      |  |      |  
|Accretion expense          |  |      | 2,004  |  |      |  
|                           |  |      |        |  |      |  
|Ending Balance             |  | $    | 57,746 |  |      | $



12. SUBSEQUENT EVENTS



On
January 24, 2011, the Company issued a $500,000 secured promissory note ("Secured Promissory Note") to an institutional
investor for gross proceeds of $500,000. The Secured Promissory Note matures May 24, 2011, has a loan fee of $100,000, payable
at the time of repayment, and is secured by an assignment of all of the Company's current and future leases in Logan County, OK
and the Company's 100% ownership in Cimarrona LLC.

13. SUPPLEMENTAL INFORMATION
ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)



Petrotech Engineering,
Ltd, and Reddy Petroleum Company prepared reserve estimates for the year-end reports for 2010 for the Cimarrona Property and Osage
Property, respectively. Management cautions that there are many inherent uncertainties in estimating proved reserve quantities
and related revenues and expenses, and in projecting future production rates and the timing and amount of development expenditures.
Accordingly, these estimates will change, as future information becomes available.



Proved oil and gas
reserves are the estimated quantities of crude oil, condensate, natural gas and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and
operating conditions, i.e. prices and costs as of the date the estimate is made. Prices include consideration of changes in existing
prices provided only by contractual agreements, but not on escalations based upon future conditions.



Proved developed reserves
are those reserves expected to be recovered through existing wells with existing equipment and operating methods.



SFAS No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies", as codified by FASB ASC topic 932, requires disclosure of certain
financial data for oil and gas operations and reserve estimates of oil and gas. This information, presented here, is intended
to enable the reader to better evaluate the operations of the Company. All of the Company's oil and gas reserves are located in
the United States and Colombia.



F-19







The aggregate amounts
of capitalized costs relating to oil and gas producing activities and the related accumulated depletion, depreciation, and amortization
and valuation allowances as of December 31, 2010 and 2009 are as follows:



|                                                                           |  | 2010     |           |   | 2009 |  
|-------------------------------------------------------------------------- |  | -------- | --------- | - | ---- | -
|                                                                           |  | Colombia |           |   | USA  |  
|Proved Properties                                                          |  | $        | 2,071,925 |   |      | $
|Unproved properties being amortized                                        |  |          |           |   |      |  
|Unproved properties not being amortized                                    |  |          | —         |   |      |  
|Capitalized asset retiremet costs                                          |  |          | 13,675    |   |      |  
|Accumulated depletion, depreciation, amortization and valuation allowances |  |          | (859,186  | ) |      |  
|                                                                           |  | $        | 1,226,414 |   |      | $



Estimated quantities
of proved developed and undeveloped reserves of crude oil and natural gas, as well as changes in proved developed and undeveloped
reserves during the past two years are indicated below:



|                                           |  | 2010  Oil (BBLs) |         |   | 2010  Gas (MMCF) | 
|------------------------------------------ |  | ---------------- | ------- | - | ---------------- | 
|                                           |  | Colombia         |         |   | USA              | 
|Proved developed and undeveloped reserves: |  |                  |         |   |                  | 
|Beginning of year                          |  |                  | 328,154 |   |                  | 
|Revisions of previous estimates            |  |                  | (33,545 | ) |                  | 
|Improved recovery                          |  |                  | —       |   |                  | 
|Purchases of Minerals in place             |  |                  | —       |   |                  | 
|Extensions and discoveries                 |  |                  | —       |   |                  | 
|Production                                 |  |                  | (22,009 | ) |                  | 
|Sales of minerals in place                 |  |                  | —       |   |                  | 
|End of year                                |  |                  | 272,600 |   |                  | 
|                                           |  |                  |         |   |                  | 
|Proved developed reserves:                 |  |                  |         |   |                  | 
|Beginning of year                          |  |                  | 328,154 |   |                  | 
|End of year                                |  |                  | 272,600 |   |                  | 



The foregoing estimates
have been prepared by Petrotech Engineering, Ltd, and Reddy Petroleum Company for the Cimarrona Property and Osage County Property,
respectively. Petrotech Engineering, Ltd. prepared a reserve report for Pacific for their 90.6% share of the Guaduas field. The
Company utilized the results of that report to arrive at its 9.4% share of the field. Revisions in previous estimates as set forth
above resulted from analysis of new information, as well as from additional production experience or from a change in economic
factors. The reserve estimates are believed to be reasonable and consistent with presently known physical data concerning size
and character of the reservoirs and are subject to change as additional knowledge concerning the reservoirs becomes available.



The Colombian reserves
are attributable entirely to the Guaduas field, which we hold through our Cimarrona subsidiary, which owns 9.4% of the Guaduas
field. There are no reserves attributable to partnership or minority interests at December 31, 2010 or December 31, 2009.



The present value of
estimated future net revenues of proved developed reserves, discounted at 10%, were as follows:



F-20







|                                          |  | 2010 |           |  | 2009     |  
|----------------------------------------- |  | ---- | --------- |  | -------- | -
|                                          |  | USA  |           |  | Colombia |  
|Proved developed and undeveloped reserves |  | $    | 6,182,460 |  |          | $
|(Present Value before income taxes)       |  |      |           |  |          |  



The PV-10 has
been adjusted by the Company to include estimated asset retirement obligations discounted to their present values based on a 10%
annual discount rate and using the same estimated useful lives as those used in our calculation of asset retirement obligations
under Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. PV-10 is a non-GAAP
financial measure; therefore, the following table reconciles our calculation of PV-10 to the standardized measure of discounted
future net cash flows, which is the most directly comparable GAAP financial measure. Management believes that the presentation
of the non-GAAP financial measure of PV-10 provides useful information to investors because it is widely used by professional
analysts and sophisticated investors in evaluating oil and natural gas companies. Management believes that PV-10 is relevant and
useful for evaluating the relative monetary significance of oil and natural gas properties. Further, professional analysts and
sophisticated investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other
companies’ reserves. Management also uses this pre-tax measure when assessing the potential return on investment related
to oil and natural gas properties and in evaluating acquisition opportunities. Because there are many unique factors that can
impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure
is valuable for evaluating us. PV-10 is not a measure of financial or operating performance under GAAP, nor is it intended to
represent the current market value of our estimated oil and natural gas reserves. PV-10 should not be considered in isolation
or as a substitute for the standardized measure of discounted future net cash flows as defined under GAAP.

The following
table represents a reconciliation of our PV-10 to Standard Measure of discounted future net cash flows.



|                                                                                   |  | At  December 31, 2010 |           
|---------------------------------------------------------------------------------- |  | --------------------- | ----------
|                                                                                   |  | (unaudited)           |           
|Present value of estimated future net revenues before asset retirement obligations |  | $                     | 15,068,455
|Present value of estimated asset retirement obligations, discounted at 10%         |  |                       | (189,196  
|Present value of estimated future net revenues (PV-10)                             |  |                       | 14,879,258
|Future income taxes, discounted at 10%                                             |  |                       | (5,951,703
|Standardized measure of discounted future net cash flows                           |  | $                     | 8,927,555 



Depletion, depreciation
and accretion per equivalent unit of production was $1.25 and $3.38 for 2010 and 2009 in the United States, respectively. In Colombia,
the depletion, depreciation and accretion per equivalent unit was $1.16 and $0.97 in 2010 and 2009, respectively.



SFAS No. 69, "Disclosures
About Oil and Gas Producing Activities", as codified by FASB ASC Topic 932 requires certain disclosures of the costs and
results of exploration and production activities and established a standardized measure of oil and gas reserves and the year-to-year
changes therein.



In addition to the
foregoing disclosures, SFAS No. 69 established a "Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves".



F-21







Costs incurred, both
capitalized and expensed, for oil and gas property acquisition, exploration and development for the years ended December 31, 2010
and 2009 are as follows:



|December 31, 2010          |  | USA |         |  | Colombia |  |           | Combined | 
|-------------------------- |  | --- | ------- |  | -------- |  | --------- | -------- | 
|Property acquisition costs |  |     | 539,464 |  |          |  | —         |          | 
|Exploration costs          |  |     | —       |  |          |  | —         |          | 
|Development costs          |  |     | —       |  |          |  | —         |          | 
|Asset retirement costs     |  |     | —       |  |          |  | —         |          | 
|                           |  |     |         |  |          |  |           |          | 
|December 31, 2009          |  | USA |         |  | Colombia |  |           | Combined | 
|Property acquisition costs |  |     | —       |  |          |  | —         |          | 
|Exploration costs          |  |     | —       |  |          |  | 2,118,662 |          | 
|Development costs          |  |     | 7,645   |  |          |  | 363,852   |          | 
|Asset retirement costs     |  |     | —       |  |          |  | —         |          | 



The results of operations
for oil and gas producing activities for 2010 and 2009 were as follows:



|                                                              |  | 2010 |        |  | 2009     |  
|------------------------------------------------------------- |  | ---- | ------ |  | -------- | -
|                                                              |  | USA  |        |  | Colombia |  
|Sales                                                         |  | $    | 98,270 |  |          | $
|Production Costs                                              |  |      | 89,806 |  |          |  
|Exploration Costs                                             |  |      | —      |  |          |  
|Depletion, depreciation, amortization and valuation allowance |  |      | 3,583  |  |          |  
|                                                              |  |      |        |  |          |  
|Income Tax Provision                                          |  |      | 1,952  |  |          |  
|                                                              |  |      |        |  |          |  
|Results of Operations from                                    |  |      |        |  |          |  
|Production activities                                         |  | $    | 2,929  |  |          | $



The following information
at December 31, 2010 and for 2010 and 2009, sets forth standardized measures of the discounted future net cash flows attributable
to the Company's proved oil and gas reserves.



Future cash inflows
were computed by applying average prices of oil and gas (with consideration of price changes only to the extent provided by contractual
arrangements) and using the estimated future expenditures to be incurred in developing and producing the proved reserves, assuming
continuation of existing economic conditions.



Future income tax expenses
were computed by applying statutory income tax rates to the difference between pretax net cash flows relating to the Company's
proved oil and gas reserves and the tax basis of proved oil and gas properties and available operating loss and excess statutory
depletion carryovers reduced by investment tax credits. Discounting the annual net cash flows at 10% illustrates the impact of
timing on these future cash flows.



F-22







The following table
presents the standardized measure of discounted estimated net cash flows relating to proved oil and gas reserves for 2010 and
2009:



|                                                        |  | 2010 |            |   | 2009     | 
|------------------------------------------------------- |  | ---- | ---------- | - | -------- | 
|                                                        |  | USA  |            |   | Colombia | 
|Future cash inflows                                     |  |      | 10,818,153 |   |          | 
|Furture production costs                                |  |      | (2,190,590 | ) |          | 
|Future development costs                                |  |      | (175,000   | ) |          | 
|Future abanonment costs                                 |  |      | (92,000    | ) |          | 
|Future income tax expenses                              |  |      | (3,344,225 | ) |          | 
|                                                        |  |      |            |   |          | 
|Future net cash flow                                    |  |      | 5,016,338  |   |          | 
|10% annual discount for estimated timing of cash flows  |  |      | (1,347,237 | ) |          | 
|Standardized measure of discounted future net cash flow |  |      | 3,669,101  |   |          | 



The
principal changes in the standardized measure of discounted future net cash flows during 2010 were as follows:



|                                              |  | 2010 |          
|--------------------------------------------- |  | ---- | ---------
|                                              |  | USA  |          
|Extensions                                    |  |      |          
|Revisions of previous estimates               |  |      |          
|Price changes                                 |  |      | 1,236,280
|Quantity Changes                              |  |      | 197,050  
|Changes in production rates, timing and other |  |      | (661,387 
|Development costs incurred                    |  |      |          
|Changes in estaimted future development costs |  |      | —        
|Purchase of Minterals in place                |  |      |          
|Sales of oil and gas, net of production costs |  |      | (8,464   
|Accretion of discount                         |  |      |          
|Net change in income taxes                    |  |      | (420,920 
|Net increase/ (decrese)                       |  |      | 342,558  





F-23